About 3 years ago I published an essay called “U.S. Pharma Supply Chain Complexity” where I attempted to provide a more realistic understanding of the U.S. pharma supply chain than the typical supply chain drawing offers. That essay was aimed at helping the industry select an approach to meeting U.S. state pedigree laws, which are now preempted by the Drug Supply Chain Security Act (DSCSA). But, as with many of my older essays, the underlying ideas still have value despite preemption.
In this case, the ideas also provide a clear explanation for why pharma manufacturers should expect to meet the electronic data exchange requirements that are dictated by the large U.S. wholesale distributors, rather than attempting to get them to accept some alternate approach.
So I have copied and pasted that essay below and then edited to serve this new purpose.
FIVE VIEWS OF THE U.S. SUPPLY CHAIN
In the discussions about the U.S. pharma supply chain we are used to seeing a depiction of the supply chain that shows one manufacturer, one distributor and one pharmacy. (Click images to enlarge.)
Figure 1. The overly simplistic (and all too common) view of the U.S. pharma supply chain.
That overly simplistic view masks way too much important complexity and consequently it can lead to completely invalid conclusions.
Here is a view of the supply chain where the vertical scale shows something closer to the true numeric proportions between those three segments.
Figure 2. Numeric proportions of the three primary segments of the U.S. pharmaceutical supply chain expressed visually. Counts for the manufacturers and pharmacy delivery points are from the HDMA (2009). I estimated the number of pharma wholesale distributors based on the list of corporate entities found in the Authorized Distributors of Record (ADR) lists of several large pharma manufacturers found on the internet. Keep in mind that about 90% of the volume of drugs passing through the supply chain goes through only three wholesale distributors.
The most striking thing about this view is that it shows how few wholesale distributors there are compared with the number of manufacturers and especially compared with the number of pharmacy delivery points. If you would take the total volume of drugs that pass through this supply chain in a given year and divide it evenly among each of the entities in each segment you would find that the percent of product that the average wholesale distributor handles is much higher than that of the average manufacturer and would be huge compared with that of the average pharmacy. Of course, the reality is much different–some handling more product and some handling much less than the average–because the sizes of the companies in the supply chain vary widely.
Now let’s take a magnified look at the immediate view of the supply chain from the perspective of an average drug manufacturer.
Figure 3. View of the U.S. pharma supply chain from a typical manufacturer.
Most manufacturers ship the drugs they make to many of the licensed wholesale distributors.
Manufacturers typically want to maximize the availability of their products to all licensed pharmacies in the U.S. so they work to setup and maintain connections with as many licensed wholesale distributors as they can handle. The largest manufacturers deal with most or all of the roughly 70 wholesale distributors in the U.S. Of course, there is bound to be some selectivity by smaller manufacturers but probably not as much as you might find with many non-commodity consumer products.
Now let’s take a magnified look at the immediate view of the supply chain from the perspective of an average pharmacy.
Figure 4. View of the U.S. pharma supply chain from a typical pharmacy. The typical pharmacy in the U.S. buys their drugs from a primary wholesale distributor, and only if that primary distributor is out-of-stock do they buy from one of a small number of secondary sources. Chain pharmacies are an important exception but are not depicted in this drawing.
The great majority of drugs dispensed in U.S. pharmacies are initially sold by the manufacturer to a wholesale distributor, who then sells them to the dispensing pharmacy. Pharmacies typically only buy their drug supplies from a small number of the wholesale distributors. In fact, most have a single primary distributor and a small number of secondary sources which they usually order from only when their primary supplier is out-of-stock of a given drug that they need.
This is even true of chain pharmacies, although these companies maintain their own internal distribution networks and the largest chains are big enough to buy the highest volume drugs directly from the manufacturers. This is an important exception, although even these pharmacies buy a large number of lower volume drugs from wholesale distributors.
Now let’s take a magnified look at the immediate view of the supply chain from the perspective of an average wholesale distributor.
Figure 5. View of the U.S. pharma supply chain from a typical wholesale distributor. The typical wholesale distributor in the U.S. buys their drugs from most of the drug manufacturers, and sells those drugs to many pharmacies. The three largest distributors each sell and deliver to tens of thousands of pharmacies.
Wholesale distributors are at the center of the typical drug supply chain for most drugs in the U.S. To offer a complete catalog, the typical pharma wholesale distributor buys their stock from many of those 1,400 or so manufacturers. The larger the distributor, the more likely they are to buy from most if not all of these manufacturers.
The typical wholesale distributor sells to a large number of pharmacies, whether as a primary source or as a secondary source. The number of pharmacies that a given wholesale distributor sells and delivers to is one of the primary components in the determination of how “large” they are. The three largest wholesale distributors each sell and deliver to tens of thousands of pharmacies.
DSCSA IMPLICATIONS OF THE FOUR VIEWS
These last four views of the supply chain expose an implication about meeting the DSCSA that would not be obvious if you only looked at the simple three-trading-partner view of the supply chain. Because the DSCSA requires Transaction Information (TI), Transaction History (TH) and Transaction Statements (TS) to be passed downstream in the supply chain, these views can help us evaluate those movements.
In the drawings I refer to “connections” between trading partners. These refer to direct business relationships, but they can also refer to the path that the DSCSA requires TI, TH and TS to be passed directly from seller to buyer (see “DQSA: Getting To Electronic Transaction Data Exchange”). Take a good look at how many trading partners the typical large wholesale distributor needs to receive/send these documents from/to. I hope you can see why it will be impossible for them to deal with more than one or two ways of exchanging this data. They must insist on standardization, which is exactly why they worked within the Healthcare Distribution Management Association (HDMA) to develop guidelines for using Electronic Data Exchange (EDI) Advance Ship Notices (ASNs) to pass this information in a standard way (see “Just Released – The HDMA EDI ASN Guidance For DSCSA”). And why they are working alongside drug manufacturers and others within GS1 Healthcare US to develop guidance for using GS1’s Electronic Product Code Information Services (EPCIS) and Core Business Vocabulary (CBV) standards to provide a path toward the future requirements of serialization-based data exchange (see “GS1 Ratifies Updated Versions of EPCIS and CBV”).
And it explains one more thing. It shows why they cannot accept paper TI, TH and TS from their suppliers even though the law allows them to be supplied that way (until November 2017). These large wholesale distributors would be drowning in paper document which would be impossible to sort out and find in a timely manner during investigations.
Most mid-size to large drug manufacturers are already capable of providing ASNs for their shipments, but some smaller manufacturers are not. From my observation, if you are a small drug manufacturer—even if you only make a single drug product—do not assume you are so small that you can provide paper transaction documents to these large wholesale distributors. In at least one case, the wholesale distributor has stated that they will impose a financial penalty on any manufacturer who provides them with paper. The other two direct you to third-party solutions that will convert your paper into a suitable electronic message that they will accept.
Either way, you are paying extra. Over time, and considering that the DSCSA requires you to provide this data in electronic form by November 2017 anyway, you may be better off investing now in a solution that can start out with HDMA-compliant ASNs and move you to GS1 Healthcare US-compliant EPCIS formatting when you add serial numbers to your packages in the next few years. Figuring out which approach is the most cost-effective for your situation will require some calculations. I hope you are running those calculations right now.