In an earlier era in the US pharma industry, “supply chain” and “logistics” were an afterthought. Pharma companies maintained large warehouses; stocked lots of product; and basically pushed product out wherever it needed to be, ensuring that a prescription would always be filled whenever the scrip arrived at a pharmacy. For most of this century, however, supply chain management has been a function with increasing importance—and complexity. The days when products could be overstocked throughout the supply chain are mostly gone; the working capital tied up in inventory is too valuable to waste. Product now moves by an intricate network of channels—wholesalers, direct distribution, specialty pharmacies and more. Equally significantly, complex (and expensive) biologicals require close temperature monitoring, safe and secure transportation—and these functions need to be backed up by precise data management and reporting. The emergence of traceability mandates—tracking drug packages step by step through their distribution—will open a new era in life sciences supply chain management.
A key player in this 21st-century pharma supply chain is the third-party logistics (3PL) provider: Companies that take over (or supplement) the warehousing and transportation responsibilities for manufacturers. Generally speaking, 3PLs do not take ownership of product (as a wholesaler would), but act as the agent of the manufacturer, ensuring that products are stored and delivered in a cost-effective yet compliant manner. Most major wholesalers also act as 3PLs; and the well-known multinational logistics giants dominate life sciences 3PL services.
But within today’s complex pharma supply chains, there are opportunities for smaller 3PLs to play a vital role. Such is the case with MD Logistics, a firm with revenues approaching $100 million, headquartered in Plainfield, IN. Founded in 1996, it has grown from being a freight forwarder alone, to four locations and more than one million sq. ft. of warehouse capacity.
Pharmaceutical Commerce sat down with Mark Sell, co-founder and CEO; here’s what he had to say.
1) MD Logistics (MDL) celebrated its 20th anniversary in 2016, but take us back to the early days. How did MDL get started, and has there been a focus on pharma all along?
My late business partner, Dave Kiebach, and I started MDL back in 1996. We were freight forwarders at the time, but both of us had experience with strategic pharmaceutical clients. It was through one of these clients that we got started in pharmaceutical distribution. We learned very early on that if you are transporting product for a client, they will inevitably ask you to perform more services, and that’s exactly what happened. So we opened a cGMP, pharmaceutical-grade warehouse. Our first building was 10,000 sq. ft., then we expanded into 40,000 sq. ft., then 80,000, then 300,000. We organically grew into a full-service 3PL company by responding to the requests and needs of our customers and the pharmaceutical industry. A big part of our early work was in managing sample distribution, which gave us experience in last-mile, PDMA-compliant delivery—something we still do.
In 2003, we started working with our first cold chain customer, taking us into the 2–8°C temperature range. Since then, we have continued to expand our warehousing and transportation service offerings, including frozen temperature ranges, along with additional service offerings to include secondary packaging, call center services, foreign trade zone and freight management services. Both organic and new business growth has contributed to increased revenues over the past number of years.
Today, we have four locations—three in Indiana and one in Reno, NV—and total warehousing capacity of more than one million sq. ft. Pharmaceutical distribution is about half of that capacity; the rest serves our retail and consumer goods customer base.
2) MDL also handles consumer and retail goods; is there a unifying theme here, or is the company being opportunistic in picking up other lines of business?
Since the inception of the company, we have always said we don’t need to be everything to everybody. We strategically target the retail and pharmaceutical industries because we have made them a specific focus over the past 20 years. We knew early on that they were distinctively different business verticals that should operate as such, but that we could also leverage knowledge, systems, processes and procedures across the two verticals.
The major differences between the two industries are their quality and compliance requirements. The pharma industry is highly regulated and quality is driven by patient safety requirements. The retail industry has very specific retail compliance requirements and quality is driven by consumer demands. Although quite different, we are able to leverage some of the knowledge and experience from our B2C distribution model within our retail business vertical to respond to the pharmaceutical industry trend towards a more direct-market deliverable.
3) In the past couple years, MDL has expanded both its dedicated cold-chain services, as well as pharma services generally. Other than simple growth, why has the company made these investments? How is your service offering changing?
When we opened our first temperature-controlled facility, the need was around controlled room temperature storage for pills and tablets. Biopharma was a new innovation at that time, but we didn’t have many inquiries for services beyond CRT storage and fulfillment. Since then, we have seen a growing opportunity for 2–8°C and frozen 3PL services, as cold as -40°C, and are proactively building to accommodate those market needs.
With new cellular therapies and the like coming to the market, logistics challenges change. A refrigerated (2–8°C) facility is not too difficult to build, but as you go below 0°C you need to think about other technologies such as ammonia or liquid nitrogen cooling, condensation control, and other factors. Manufacturers face this complexity themselves, and that’s why a shared-service offering where we can provide enough capacity to justify the larger capital investment becomes valuable.
In addition to the demand for multiple temperature storage and fulfillment configurations, we have seen a significant shift within the pharma industry, over the past 10–15 years, embracing more of a business process outsourced model, to include call center services, vendor managed inventory, order management, packaging and kitting.
As we have grown, our customers have continued to evaluate their supply chains and look for opportunities to optimize and become more efficient. More customers are demanding network optimization, which led to our expansion to the West Coast in 2011. When we expanded, we were mindful to ensure that all capabilities, systems, processes, integrations and quality controls were mirrored in our new facility. This ensures that our customers’ experience with us has the same integrity and professionalism, regardless of distribution location. For some clients, we are an optimal single source location for distribution, but for others, we are able to provide increased coverage, speed to market, and risk mitigation by positioning their product in both the Midwest and on the West Coast. As our customer demands change, we are always looking for opportunities to further build out our US geographical footprint.
4) MDL partners with another firm, SEKO Logistics, to handle international shipping. Is this inbound and outbound? How are the handoffs managed?
We founded MDL as freight forwarders, so it’s only natural that we remain a freight forwarding company today. While our service offerings have increased, we have always remained mindful of the importance, and value, in being able to offer our customers global freight forwarding services. In 2002, we formed a strategic partnership with SEKO Logistics. This partnership includes access to a global network comprised of more than 150 offices in 20 countries around the world. SEKO and MDL coupled together creates global supply chain integration, rounding out our service offerings from both an import and export perspective.
We have SEKO team members embedded within MDL operations, both in our Indianapolis and Reno locations. While SEKO and MDL are separate business units, SEKO personnel are on-site to liaise with MDL warehouse operations, offering a seamless supply chain service offering. Our SEKO team has broad expertise in air and ocean import/export services, customs brokerage services, and Foreign Trade Zone administration. Collectively, we have worked with SEKO to develop cold chain pharma shipping options to ensure speed, visibility and compliance.
5) Your multinational logistics competitors will say there’s an advantage to having one integrated logistics service worldwide; how do you address that concern?
The MDL and SEKO combination gives our customer base the best of both worlds. We are carrier agnostic; even though we have the capabilities of a freight forwarder, we don’t require customers to use our carriers or a specific transportation provider. We are able to remain neutral and customers are able to leverage their freight spend across the market to get the best possible price and service available. Additionally, we are extremely focused and capable, with excellent local market knowledge and regulatory compliance, coupled with a strategic freight-forwarding platform to facilitate global product movement.
One trend we have seen increasingly is that companies are looking for niche players, geographically, that excel at specific core competencies, rather than relying on a single global provider, as companies of that nature tend to have geographical gaps. Ten years ago, it was common to hear that a multinational pharma company wanted a multinational logistics partner of comparable scale, but I think that companies are backing off that philosophy. Now the emphasis is on finding the best partners in specific regions. This trend has been extremely beneficial to our growth.
6) How is MDL handling data and reporting requirements generally, and preparing for the traceability requirements of the Drug Supply Chain Security Act (DSCSA)?
Over the last six to seven years, we have made a substantial investment in upgrading our warehouse management system (WMS). From 2010 to 2014, we worked to migrate all of our customers over to the JDA RedPrairie WMS. This is a tier-one, validated WMS that is highly reputable within the pharmaceutical industry. It allows us to manage customer requirements across the warehouse floor, and provide visibility to key performance metrics and benchmarks. 90% of our warehouse activity is managed through an integration to our customers’ ERP systems, which includes business rules and procedures, and allows us to control compliance within operations.
As we looked to upgrade our WMS, serialization was top of mind. We have been managing serialized traceability for a number of years for our consumer electronics retail customers. As we operate the same JDA RedPrairie system across all our business verticals, we are able to utilize some of the logic that we already have in place within our retail environment and put that into play for our pharmaceutical customers. This has allowed us to develop a market competitive serialization solution for our pharmaceutical clients, ahead of the 2017 and 2023 DSCSA serialization mandates. This has been a huge advantage for both current and new customers in the life sciences industry.
Not only have we invested in systems and software, but we have also invested heavily in our internal IT team and resources. Our IT team is able to seamlessly perform complex integrations for customers. We firmly believe that a good serialization strategy starts with a strong customer integration. An integration will make or break the project, so it is of great importance to have buy-in from the customer and their IT team as well.
In addition to deploying a robust and high-tech WMS, we have heavily invested over the last five years in detailed training protocols, from the associate level to upper management. Our training program continues to be a top priority as our warehouse functions become more sophisticated and complex.
7) MDL includes packaging services in its slate of offerings. What do pharma companies typically call on you to do? Is there an advantage in having MD handle packaging, as opposed to a customer working directly with a contract packager?
As a licensed FDA repackager/relabeler, we are able to offer current customers secondary packaging, kitting, labeling and rework services. In our experience, we have learned that quite often when you are managing inventory for a customer, you will be asked to change the packaging in some way.
The biggest advantages to our packaging services are speed, efficiency and flexibility. Through this offering we create an extremely reactive supply chain. A large percentage of the product we handle is sourced internationally, so the ability to redress the product on-site reduces the time and money it costs to ship it back to an international manufacturer. This increases supply chain speed and efficiency. The other major benefit is allowing customers to postpone customer-specific packaging. We can receive inventory in standard form and wait until the last step in distribution to
kit the inventory, specific to a customer need. This increases flexibility and allows for a more efficient way to manage inventory.
8) Looking down the road, what do you think are the trends affecting 3PL services for pharma? Where do you see significant gaps between what pharma companies are looking for today, and what the logistics industry offers?
Cost pressure is ever-present throughout the pharma industry, more so today than ever before. With the industry looking to a more direct model (direct to pharmacy, physician or patient), we as a 3PL face a challenge, as this essentially turns a 3PL into a dispensary.
Financial management is also coming to the forefront more. The 3PL industry is being asked to provide increased services around full order to cash, including call centers, full order processing, invoicing, payment collection and Medicaid rebates.
On the technology front, we’ve already mentioned two of the leading changes: the requirements for DSCSA compliance and the need to provide below-zero logistics services for the latest biopharma products. We continue to invest in our systems and facilities to stay ahead of these changes.
The logistics industry has changed from the recent past; nowadays, there are industry alliances all across the spectrum. We collaborate with some of our competitors, an example of the flexibility we are able to provide to our clients. At the end of the day, what’s important to our clients is providing them with partnerships that give them the best advantage in a given area of the supply chain.
9) Lots of people in the pharma logistics business like to say, “it’s not a package, it’s a patient” to attest to how different logistics is for the life sciences business as compared to others. Tell us about how this philosophy is expressed in MDL’s business and how you feel reflecting back on the past 20 years in the industry.
The most important asset we have is our people. Their commitment and buy-in to the daily execution of our business is what sets us apart. We partner with our customers to provide our staff with product training and education, informing them on the importance of their product and its effect on the patient. Our employees aren’t just shipping a box, they are saving a life. We collaborate with our customers to support this education effort.
Taking it one step further, we tie in charitable contributions and fundraising around customer impact and drug specific industries. Diabetes care is an important issue for us and our customers, so we hold an annual fundraiser for the American Diabetes Association that sponsors K–12th grade children who wish to attend sleepover camp. For children with diabetes, going away to camp is really out of the question because traditional camps don’t have the medical staff or training to typically support the needs of a diabetic child. Local branches of the ADA hold a weeklong summer camp in their respective areas that have the appropriate medical staff and training to care for diabetic children. We have found our partnership with the ADA to be very rewarding, sending anywhere from 8–10 kids to camp each year.
The other major charity that we donate to is the American Heart Association. My late business partner, Dave Kiebach, passed away suddenly in 2007 due to a massive coronary failure. Since then, we have held annual fundraisers to donate money to the AHA in Dave’s memory, in hope that our contribution can help with awareness and possible prevention efforts.
Personally, over the last 20 years, I have watched our employees develop and grow. I’ve seen them come into the company as young people and I’ve watched them get married, buy their first homes, and become parents. We have people who started at the associate level and have since been promoted within the organization. I am most proud of that.
Collectively, we are most proud of our reputation as a company. You only have one reputation, and it holds great value. As a result of our culture, training and partnership with our customers, we have been able to develop a strong reputation over the past 20 years, and our goal is for that to continue. The relationships we have developed throughout the industry are what enable us to continue to be successful in the pharmaceutical space and attract new customers.