3PL Won't Back Down from Health Care Market

Edition: December 2001 - Vol 9 Number 12
Article#: 1110
Author: Repertoire

After an initial flurry of excitement a couple of years ago, most third-party-logistics companies have all but given up on health care. But one of them, UPS Logistics Group, is still slugging it out, although in a different way than it had originally intended.

In August 1998, the company' Worldwide Logistics subsidiary formed a health care group, intending to offer providers – particularly integrated delivery networks – an alternative to traditional health care distribution. The company would not provide sales or marketing support for manufacturers, nor would it take title to products, but it would manage inventory, fill orders and ship products where and when they were needed. But like other so-called 3PLs (third-party-logistic companies), it failed to sign up any IDNs.

Two years later, the company acquired Ontario-based Livingston Inc. and its Livingston Healthcare Services subsidiary, based in Newark, DE. Livingston had experience providing logistics services for medical and pharmaceutical companies with special transportation and storage needs, such as those whose goods needed to be refrigerated or are controlled substances. It had a strong presence in Canada and was making inroads in the United States.

Today, Livingston has dedicated health care facilities in Ontario, CA; Fort Worth, TX; Memphis, TN; Atlanta; Louisville, KY; and Newark, DE; and is considering expanding in the Northeast. It has moved beyond the transportation of pharmaceuticals into logistics for animal health, nutritionals and med/surgical products.

Consolidated Distribution
Through the acquisition, UPS Logistics inherited Livingston's five-year-old program with the Canadian Pharmaceutical Distribution Network, a non-profit cooperative created in 1995 to consolidate the purchasing and fulfillment of pharmaceutical products from Canadian pharmaceutical manufacturers. (See related article.)

In Canada, hospitals buy more products- including pharmaceuticals- direct from manufacturers (as opposed to distributors) than in the United States, says Vance Moore, vice president of sales and marketing for Livingston Healthcare Services (a UPS Logistics Group company). The Canadian network cuts through some of the inefficiencies that such a system can bring about, he says.

Through it, hospitals place just one purchase order (to Livingston) and receive just one shipment of pharmaceuticals from multiple manufacturers. (That shipment arrives from any number of carriers with whom UPS Logistics contracts.) The hospitals pay one invoice (again, to Livingston), who then sends payment to the manufacturers.

At no time does Livingston take title to the products, nor does it get involved in selling or marketing them. ''This model makes sense for manufacturers who have their own sales and marketing force,'' says Moore.

The model not only creates efficiencies for hospitals and manufacturers, says Moore, but it offers higher ''visibility'' of their goods in the supply chain, meaning that both buyers and sellers can easily see where their products are in the chain at any moment in time.

Services Parts and Repairs
UPS Logistics believes it has a winning model for the future, one that will allow it to transfer successful business practices from the non-health-care sector to health care.

For example, UPS Logistics has gotten involved in the transportation of service and service parts, or what is called the ''post-sales cycle.'' Its strategic-parts depots are located near customers' locations, so that parts for vital equipment can be shipped quickly, often for delivery within one or two hours, says Moore. And in certain sectors, such as computers, the company has gone one step further by providing low-level repairs. The model could be extended to medical equipment.

Ultimately, says Moore, the company sees itself focusing on the movement of three key things: products, funds and information. ''Everything that we do in the future will involve these three elements,'' he says.