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Minimizing Risk Within the Pharmaceutical Supply Chain

Minimizing Risk Within the Pharmaceutical Supply Chain

The U.S. pharmaceutical supply chain is responsible for providing patients safe, secure and timely access to more than 4 billion prescription medicines every year. Sustaining this complex supply chain requires the collaboration between a diverse group of partners, including manufacturers, distributors, pharmacies as well as other healthcare facilities and providers.

Ultimately, the system is most effective when each partner is empowered to focus their time and resources on what they do best, whether that is dispensing vital medicines, counseling patients or investing in research and development to find the next cure. Distributors, the logistics experts of healthcare, focus on making this supply chain more efficient, dependable and secure by delivering medicines to hundreds of thousands of healthcare providers, streamlining inventory and managing financial risk.

To efficiently manage financial risk, distributors lean into their role as the connection point between the 180,000 healthcare providers and 1,300 drug manufacturers that they serve. By taking on this role, distributors save each manufacturer from having to individually conduct several administrative activities, allowing them to prioritize their area of expertise. Distributors take on risk by facilitating three key components of distribution management: receivables timing, controllable risk and uncontrollable risk.

Receivables Timing

Every day, distributors take legal ownership of 11.3 million prescription units upon purchase from manufacturers and bear the financial risk of storing, transporting, selling and ultimately obtaining payment from pharmacies and providers. This process mitigates risk for manufacturers by providing payment before the product reaches its final destination and allows them to better manage their cashflow.

By taking legal ownership of the inventory, distributors streamline the distribution process, providing manufacturers the benefit of a single, consolidated payment, rather than multiple staggered payments from customers. By making this process more efficient, distributors ensure vital medicines reach patients quicker and save the overall healthcare system money.

Controllable Risk

Controllable financial risks are factors that organizations can prepare for and take proactive measures against. Distributors provide a variety of activities to control receivables risk, including performing credit checks, verifying licenses, performing onsite inspections of pharmacy partners and maintaining credit default insurance.

By aggregating these administrative activities among a limited set of logistics experts, distributors save each manufacturer from having to perform them independently, which lowers costs throughout the entire ecosystem.

Uncontrollable Risk

Despite the hard work that distributors and other industry partners put into ensuring the integrity of the pharmaceutical supply chain, there are always unpredictable events that can restrict healthcare providers’ ability to pay for the healthcare products they have ordered. These events, which can include fraud, litigation, natural disasters and short-or long-term liquidity problems, are known as uncontrollable financial risk.

Through the strength of relationships with their pharmacy customers, distributors are better positioned than individual manufacturers to work with providers to obtain payment in a way that works for all parties. Distributors are uniquely situated within the supply chain to minimize this risk and ensure vital medicines efficiently get to where they need to go.

Managing financial risk is just one way that distributors support their supply chain partners. To learn more about how the industry empowers both manufacturers and pharmacies to focus on their core competencies, check out our latest fact sheet with key findings from The Role of Distributors in the US Health Care Industry.

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