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From Apothecaries to Pharmacies: The fascinating evolution of pharmaceutical logistics.

We are delighted to share the latest article co-written by Pierre Abou-Hamad, Citwell US Country Manager, and Tom Bendali, Citwell Manager.

The creation of modern pharmacy, forged by the progressive control of health products trade

Historically linked to the profession of grocer, the apothecary and later the pharmacist profession developed around a key element: control. In the 12th and 13th centuries, France defined the status of apothecary. Its aim was to control the distribution of medicines, authorizing it only to registered pharmacies: "Whoever is a grocer is not an apothecary, whoever is an apothecary is a grocer".

In the centuries that followed, and in line with technical progress, more and more functions were delegated to apothecaries to ensure the integrity of the products on offer: control of merchandise, monitoring of weights and measures, etc. It was in the 19th century that the term pharmacist replaced that of apothecary for the exclusive right to prepare remedies, previously shared with other professions (herbalists, grocers-drugstores, etc.).

From this era, two elements remain that determine today's pharmaceutical distribution:

 

  • A local presence close to patients, combined with a combined sales/advisory role for pharmacists in pharmacies
  • Access to the value chain restricted to certified players, enabling control bodies to ensure product integrity.

In response to the sector's growing need for control, technological solutions are being developed. For example, serialization ensures the authenticity and unique distribution of each box of medicines, by exploiting the benefits of digitalization.

 

The pharmaceutical sector faces multiple constraints

Thus, the value of the pharmaceutical industry is closely linked to its ability to absorb the control constraints applied to the sector. These constraints can be categorized into three areas:

 

  • Physical constraints, linked to healthcare products, are designed to maintain their integrity: expiry management encourages the use of FEFO (First Expiry First Out) in logistics, and maintaining the cold chain requires special storage and transport resources - as we saw during the COVID crisis in particular - or the sealing of medicine boxes, requiring a review of the delayed differentiation methods used up to now.
  • The regulatory constraints of the field enable control entities to exercise their duty. In particular, the need to work only with players qualified to operate in the healthcare field, such as pharmaceutical depositories, limits the field's resilience in the face of crises. In addition, the inertia of the qualification process for production lines requires pharmaceutical companies to anticipate and manage the production of their product portfolio.

These regulatory constraints limit the sector's agility, but today they represent an extremely effective means for control bodies to secure the entire value chain. For example, the European anti-counterfeiting program has led to the gradual introduction of serialization tools throughout the pharmaceutical supply chain.

 

  • Economic constraints are applied specifically to the healthcare sector. Indeed, the law of the market does not fully apply to this field, since the insurances negotiate the sale prices of medicines and defines whether they are reimbursed. As a result, the entire supply chain must be able to offer a medicine at the right price, thereby regulating the margins of all those involved, from the production of the active ingredient to the distribution and dispensing of the medicine.

A logistics footprint structured around 3 complementary entities

Let's now turn our attention to the standard flow of drug dispensing via city pharmacies.

We see a combination of players with very different stakes and activities. Together, they ensure the distribution of over 20,000 products to more than 45,000 Pharmacies & Drug Stores in the United States:

 

  • Pharmaceutical companies produce and then distribute drugs at the point of entry to the network. The general trend is to store medicines and then distribute them via a national or continental warehouse.  They may rely on pharmaceutical agents (logistics service providers authorized to manage drug flows) when subcontracting their distribution operations.  The logistics unit is very often a mixed items pallet.
  • The pharmacies distribute and advise patients. They stock certain items (5,000 items on average), but have to work under severe constraints. Indeed, they have little space and time to allocate to logistics activities, since priority is given to patient advice and service. Logistically, they often distribute products by the unit (box), patient by patient, with or without prescription. Mechanization solutions are often essential for these players. For example, carousels or other rotating storage systems meet the dual challenge of providing both a high level of stock compactness and freeing up pharmacists' and dispensing staff's time in the service of the patient. What's more, pharmacies can rely on wholesaler-distributors for deliveries up to 2 times a day, to compensate for the low stock levels maintained.
  • Wholesaler-distributors provide the interface between these two worlds, playing a key logistical pivot role. They receive products from pharmaceutical keeping them in stock, then redistributing them to all pharmacies in the country. They generally rely on a multi-level distribution network: centralized reception and inventory management of the entire drug portfolio, followed by support from local establishments to ensure delivery to pharmacies several times a day via regular rounds using local stocks or cross-dock flows from central warehouses. They are legally committed to maintaining nearly 30,000 product references and are organized to deliver them to any pharmacy in the country in less than 48 hours. The logistical challenges facing these players are responsiveness, preparation speed and flow synchronization. The logistical work unit is the pallet (heterogeneous or homogeneous) upstream, the single box or same cartons for references with the highest turnover.

Some players disrupt the traditional model

There are currently several trends in the healthcare sector that revolve around this traditional dispensary distribution scheme. Under the economic pressure brought on by state control of drug prices, some laboratories are equipping themselves to serve pharmacies directly, and to offer their products to their customers and thus absorb the margin currently earned by wholesale distributors. For the time being, these flows are marginal compared with flows through wholesaler-distributors and are limited to the delivery of low-volume, high-margin products to groups of pharmacies or large pharmacies.

At the same time, the other major healthcare product distribution model - supplying hospitals and clinics - has been structured around direct deliveries between laboratories and hospitals/clinics. In the current tense context of healthcare product availability, this model is now being challenged by players who have taken their inspiration from the supply flow of pharmacies, by copying the wholesaler-distributor model, aim to evolve from a central purchasing model (grouping orders to enable members to benefit from grouped/negotiated prices) to a health product distributor model, purchasing, stocking and distributing health products.

 

By Tom Bendali, Manager, and Pierre Abou Hamad Country Manager US at Citwell Group

To learn more about our methods and the teams that implement them every day, contact us or visit our website at: www.citwell.com

 

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