Most people may know United Parcel Service Inc. for its retail parcel delivery service, but the big shipping company and others like it are also rapidly carving a niche for themselves in health care logistics.
The company boasts some big-name customers in the pharmaceutical and medical device market, including Minneapolis-based device ﬁrm Medtronic Inc. Its range of services includes temperature-controlled shipping and expertise in compliance with regulations established by agencies such as the Food and Drug Administration and the Drug Enforcement Administration.
The ﬁrm is looking to expand this segment even further through aggressive acquisitions. This April, the company announced its purchase of the Hungarian health care logistics company Cemelog to strengthen its presence in Eastern and Central Europe — increasingly important health care markets for manufacturers.
The deal, the latest in a string of similar buyouts, is part of a winning strategy that the ﬁrm ﬁrst set in motion in 2006 when it ventured into health care logistics. Today, it runs 42 health care logistics centers worldwide.
But UPS isn’t the only big shipper making inroads in this niche market. Last spring, Germany-based DHL opened health care logistics and life sciences centers ﬁlled with cold storage units in Atlanta and Miami for shipping to North and South America.
“The life sciences and healthcare industry has been a key sector that DHL has placed a prominent focus on for several years now,” said David Bang, CEO LifeConEx (owned by DHL). “As this sector has grown, our services portfolio, Certiﬁed Life Sciences Stations and group of specialists have grown as well to fulﬁll our customers’ present and emerging needs.”
And FedEx HealthCare Solutions, which also offers supply-chain management and temperature-controlled shipping, has seen double-digit growth in revenue since starting in 2010.
Third party system
The reason behind the interest from these big three shipping ﬁrms is clear: business is booming in the health care logistics space. But contrary to conventional logic, business is growing precisely due to the many challenges looming for the industry, not despite them.
Supply chains are becoming harder to manage due to a number of factors. For one, most device companies are looking beyond saturated markets in Western Europe and the United States toward underserved, developing parts of the world such as Asia, India and South America.
“The growth rate in these emerging markets is very attractive — you deﬁnitely need to look outside and see what your strategy is,” says Robin Hooker, director of global strategy healthcare logistics at UPS.
But as ﬁrms go global in search of bigger proﬁt margins, the challenges pile up, too. Entrance into these markets requires specialized knowledge of the regulatory ins and outs of each country. With these complications, companies that formerly managed their own supply chains have an increased need to hire third party companies whose core expertise is logistics.
It makes sense, then, that big shipping companies would step in to help ﬁll in the void, since they already have a global logistics infrastructure that allows them to build relationships with these ﬁrms.
By partnering with a third party company, ﬁrms looking to penetrate international markets can do so without incurring the massive cost of building a global presence from scratch.
“You’re doing it with less risk,” says Hooker.
Not that there isn’t something in it for parcel companies, too — the global economic slowdown has resulted in stagnant business from consumers, who tend to opt for slower, less costly shipping methods in a ﬁnancial crunch. Meanwhile, clients in the health care logistics business are still willing to pay a premium for more specialized, niche services, resulting in better margins.
No place like home
Health care logistics is also becoming more complicated due to the rise of home health, which the U.S. Department of Labor projects to be one of the fastest growing industries in the country. Demand for home health services is driven by aging baby boomers and the advent of novel technologies that allow patients to be safely monitored outside the hospital.
According to Transparency Market Research, Inc., the current home health care market accounts for approximately $196 billion in revenue, and that number is expected to climb to about $305 billion by 2018.
But this major shift in point of care means that the health care supply chain will increasingly involve deliveries from the hospital to the patient’s home.
Recognizing that home health is the way of the future, health care logistics ﬁrm Cardinal Health announced this September that it acquired AssuraMed, which specializes in patient home delivery.
The big shipping players in particular seek to leverage their retail delivery expertise to meet this new demand. For example, FedEx has time-speciﬁc delivery appointments.
“It ﬁts perfectly into patient care because in so many cases, many of those deliveries need to be done late in the afternoon or early evening,” says Carl Asmus, vice president of supply chain solutions and market development at FedEx.
Similarly, UPS’s My Choice platform enables customers to choose the time of delivery to ensure they receive their parcel.
These time-speciﬁc delivery options are especially beneﬁcial for patients who are waiting for time-sensitive medications and other treatments, or even home health nurses seeking to plan deliveries to coincide with their patient visits.
“We think is a great game changer for the residential delivery market and enhances the connected experience,” says Hooker.
Jack of all trades?
Naturally, opinion is divided on UPS’s entrance into the health care space. Some critics argue that the company has some catching up to do to get up to speed on the health care industry, which requires speciﬁc regulatory expertise.
But UPS’s Hooker argues that UPS’s expertise in other industries is a beneﬁt, not a drawback. “There are lessons to be learned throughout the supply chain,” he says. It’s widely acknowledged that compared with the efﬁciency gains made in other industries such as consumer electronics or retail, health care supply chains still have a long way to go.
As hospitals merge and form alliances, their logistics consequently become more stressed. “There’s a lot of redundancy — the opportunity to drive efficiencies is huge,” says Ira Tauber, executive vice president/COO of Triose.
Part of this is due to the unique regulatory challenges in the health care space that other sectors are unaffected by. Certain products require specialized handling.
“The stringent requirements were something we thought we would be very good at,” explains Hooker. In all its centers UPS displays signs with its favorite health care mantra: “It’s a patient, not a package.”
But the beneﬁts of specialization aren’t entirely lost on these new players. UPS has paired up with health care logistics ﬁrm Triose, which specializes in serving hospitals. The two ﬁrms work symbiotically, explains Tauber.
“We have the expertise in working within health systems, while UPS has the systems and the processes we rely on that give that control and visibility and savings,” he explains. “Whether it be domestic, international, parcel, air freight or LPL truckload — they give us a great set of tools to work with.”
And in late October Cardinal Health also announced a similar alliance with FedEx. “With the changes happening in the market, everyone needs to evaluate the chain and look for new solutions to respond to changes in health care,” says Rob Doone, vice president of Integrated Logistics Services at Cardinal Health.
Amid these new supply chain challenges, a final rule issued by the FDA in September requiring unique device identiﬁers may make life a little easier for health care logistics ﬁrms.
The rule was intended to address shortcomings in tracking malfunctioning devices. In the past, the FDA has struggled to issue a timely response to faulty medical devices that posed a threat to patient safety.
By issuing a unique device identiﬁer, the FDA hopes to identify and take action on product problems more rapidly and efficiently. The rule will have far-reaching consequences for the entire medical device industry, requiring manufacturers to purchase new software and equipment and perform additional employee training.
Although it represents a costly logistical headache for manufacturers, it may drive unintended benefits for the supply chain side, where increasing inventory visibility remains a key concern for manufacturers.
“Right now, there are so many devices out there, just by chance two or more manufacturers may have the same catalogue number — when customers receive the product it might cause confusion,” says Mike Groesbeck, senior vice president of quality and regulatory affairs at Cardinal Health.
“Manufacturers are worried about getting inventory as close to the end user as they possibly can, trying to get inventory out of the trunks of cars to locations where they have real time visibility. The ability to have end-to-end visibility — everything from inventory at rest to inventory in transit — is critical to reduce cost,” says FedEx’s Asmus.
If every device has a unique number, it allows for better visibility of each individual product in the supply chain. “You’ve got things like standardization, common nomenclature – without that it would be very difﬁcult to do the things that need to be done in the industry,” says Triose’s Tauber. “You have the opportunity to drive savings through things like standardization — how do you know how many widgets or devices you’re using and what manufacturers you’re using.”
By knowing exactly what products are going where, executives can get a better idea of where they can pare back costs and drive efﬁciencies — say, ordering only three different brands of the same product where there used to be 13.
“You now have better visibility to each unit level item within your supply chain and that allows the inventory and resource planning system to allocate the ﬁnal destination more speciﬁcally and to move those around in supply chain to meet dynamic demand,” says UPS’ Hooker.
For example: if a product needs to be rerouted to a different part of the country, the number enables the shipper to physically track each individual item on a more granular, detailed level rather than seeing it as part of a large carton.
Currently, hospitals aren’t required to utilize UDI, but Groesbeck predicts that they will take advantage of its potential efﬁciency gains anyway. “In the next two or three years, you will see hospitals setting themselves up to work with UDI,” he says.