Deciding Whether To Outsource A 3PL Provider: 4 Questions To Ask
By Joel Wayment
A pharmaceutical manufacturer’s primary goal is to bring drugs to market that drive improved patient outcomes and lead patients on the road to wellness. However, the processes, resources and financial investment required to bring these drugs to market can be challenging roadblocks to overcome. Manufacturers must manage both the day-to-day warehousing, transportation, distribution and order-to-cash functions for their entire product portfolio and the regulatory and licensing requirements necessary to bring new products to market. The scale required to effectively implement all of these functions in a cost-efficient manner leads many manufacturers to outsource to a third party logistics (3PL) provider that handles their logistics from end to end.
However, with all of the variables involved, deciding whether to outsource to a 3PL provider can seem overwhelming. In this article, we will review four key questions about your business that can simplify this process and make your decision easier.
Does your company have the necessary resources for managing storage and distribution today and in the future?
Product distribution involves a large-scale operation that can require a complex infrastructure including staffing, technology, facilities and equipment. Some manufacturers may outsource their 3PL needs because they don’t have the scale to build and support these processes on their own, while others have developed the scale of their operation over time and are realizing an increased return on their initial infrastructure investment, making the decision more difficult. No matter the size of your business, it’s important to look beyond the initial investment and consider if you’re willing to continually invest in improving capacity and capabilities as your portfolio expands.
3PL providers handle the demands of multiple clients and offer economies of scale that are not usually available to a single manufacturer. Outsourcing to a 3PL provider can often help manufacturers avoid the continual investments and labor needed to improve capabilities and remain sustainable over time. Supporting ever-changing regulatory requirements such as DSCSA and the increasing trend of reclassifying drug schedules can also be difficult to manage without the proper type of storage location. In addition, 3PL providers can help manufacturers handle fluctuations in demand due to seasonality, supply chain events or sales surges, and can defend your business against unplanned expenses that may arise as a result.
Are you prepared to build and train a customer support and accounts receivable team?
In addition to the complex infrastructure required to support distribution, an equally complex infrastructure is required to support customer needs. Outstanding customer service builds loyalty and trust and ensures long-lasting business partnerships. However, building your own highly capable customer support team requires hiring, training and staffing a group of dedicated employees that is available 24/7 to field customer calls, collect outstanding balances and handle product returns.
3PL providers have the resources and processes in place to deliver high-quality customer support. The provider can serve as an extension of your company through dedicated phone lines, education, training and materials that are consistent with your company’s brand to deliver a seamless experience for customers. Outsourcing to a 3PL can also reduce the considerable time and effort that is required to collect payment in full, process returns and reconcile credits.
Experienced 3PL providers can handle the physical and financial aspects of the returns process and are flexible enough to scale up staffing to facilitate returns during peak periods or product recalls. They can also resolve customer chargebacks, issue wholesaler credits and ensure compliant product disposal or destruction. Finally, 3PL providers can share best practices learned from their experiences supporting multiple manufacturers and can deliver metrics for evaluating their performance.
Does your company have the flexibility to adapt to ever-changing regulations?
While the logistics of distributing an existing product are challenging, bringing a new product to market is equally complicated. For manufacturers releasing a new or recently acquired product, completing state licensing requirements can be quite time consuming. As of publication, the vast majority of states now require pharmaceutical manufacturers, both physical and virtual, to obtain licenses for both intrastate and interstate distribution. In several states, the process to obtain a license cannot begin until after the product has been approved by the FDA, which could delay shipment by several months, even under ideal conditions. In total, the licensing process can take anywhere from three to eight months to complete, potentially resulting in lost revenue or increased competition as other manufacturers begin to enter the market during this lag time. Additionally, changes such as USP <800> and DOT regulations pertaining to the handling and classification of hazardous materials can be intimidating for manufacturers and drive them towards a more experienced partner.
To accelerate their time to market, some manufacturers are now leveraging 3PL providers’ existing state licenses under the 3PL Title Model. Title model offers similar services and distribution capabilities to a traditional 3PL model, but differs in that the 3PL provider purchases and takes title of the product, allowing the manufacturer to leverage the provider’s existing state licenses to distribute to sites of care nationwide. While the manufacturer may need to obtain licenses in their home state and the state of the 3PL provider’s location, as well as a select number of other states, the title model can potentially accelerate the launch of a product by as much as a year. For manufacturers who outsource their accounts receivable to a 3PL title model provider, the provider may also assume the bad debt risk in addition to managing invoicing and collecting payment, adding additional value. Note that the provider may still expect to be kept whole on any pricing agreements, contracts and discounts made with the customer.
Can your company properly control the chain of custody throughout the product lifecycle?
Perhaps the most important thing to consider when deciding whether to outsource your logistics needs is ensuring that the provider can properly control the chain of custody throughout the product lifecycle. Due to the special handling needs and regulations surrounding many specialty pharmaceuticals, manufacturers may be leery of relinquishing control to an outside provider. However, a reputable 3PL provider should be able to effectively control the handling of the product from the warehouse to the site of care and ensure that the integrity of the product is never compromised along the way.
To properly control the chain of custody, 3PL providers must have the systems and technology to ensure the correct warehousing, storage, packaging, transportation and delivery procedures are used at each stage to protect the product. They should also have the ability to integrate the manufacturer’s systems with their own and be able to provide the manufacturer with real-time data through data feeds or online reporting tools. The provider’s systems should also be FDA-validated and meet the manufacturer’s cGMP requirements as well. 3PL providers that focus on specialty medications usually have the scale to invest in top-quality equipment, such as refrigerated trucks and temperature-mapped facilities, to ensure compliant handling and maintain consistent temperature of products. Because 3PL providers manage logistics for several companies, they can typically offer manufacturers access to dedicated fleets, qualified drivers and advanced security features to prevent tampering and ensure that products arrive safely at their destination. At time of delivery, the provider should also offer appropriate tracking and electronic signature capture to validate the integrity of the chain of custody and adhere to FDA guidelines.
Is a 3PL provider the right choice for you?
With multiple variables to consider, deciding whether to outsource your logistics needs to a 3PL provider can be a difficult decision for any manufacturer. However, asking these questions and evaluating your business’ ability to invest in and support sustainable solutions for the future can make the decision easier. If you find that building and maintaining the infrastructure to support distribution, customer support, proper state licensure and a secure and compliant chain of custody would be a strain on your organization, using a 3PL provider may be the answer. Partnering with an experienced 3PL provider allows you to stay focused on bringing new products to market that lead to better patient outcomes.
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Joel Wayment is Vice President of Cardinal Health 3PL, a leading provider of distribution solutions for the pharmaceutical industry. Contact him at joel.wayment@cardinalhealth.com for more information.