HDMA 2010-2011 Factbook Updates Distributor IT Efforts

The annual Factbook from the Center for Healthcare Supply Chain Research of the Healthcare Distribution Management Assn. (Arlington, VA) provides a wealth of data on distribution operations, finances and business practices. Insights into manufacturer distribution-center operations are also presented, although the surveys that the Center runs garnered only a minority of manufacturer responses.

Generally, full-line wholesalers (who carry thousands of stock-keeping units [SKUs] and have authorized distributor relationships with manufacturers) have been on a decades-long progression of cutting more and more costs out of the distribution process. They have to; for the most part, their retail customers don’t pay directly for delivery, even though distributors deliver as often as twice a day, and are responsible for managing pharma manufacturers’ relationships with pharmacies and healthcare providers, and handling bad debt.

For the majority of transactions between manufacturers and distributors, electronic data interchange (EDI) is the preferred system. In a perfect world (where the legendary “perfect order” is the norm), there would be 100% agreement between what is transferred between supplier (manufacturer) and customer (wholesaler). Factbook data show that this goal is getting closer, but is still not reached. Generally speaking (Table 1), distributors are more invested in EDI systems than manufacturers (they send more data out to manufacturers than manufacturers send to them).

TABLE 1. EDI ACTIVITY BY MANUFACTURERS AND DISTRIBUTORS. source: Ctr for Healthcare Supply Chain Research

Even within EDI transactions, there can be variation in how compliant trading partners are with each other’s preferred descriptors. HDMA has published voluntary guidelines on EDI use, but only 17% of distributors themselves are have “full adoption” of the guidelines, according to HDMA’s survey (because of some changed categorizations of respondents, this figure is actually down from last year’s 33%).

The EDI data sets most frequently talked about in trade management circles are Product Activity Data (852), Product Transfer (867) and Return Merchandise Authorization Notification (180); there are whole businesses built around analytics based on these data (see, for example, the “revenue management” story on p. 12). The takeaway for manufacturers is that overall transaction volume (sales, and, thus, revenue) might not be affected by greater or lesser use of EDI, but the costs of transactions, and the ability to gain visibility into downstream market activity, will very much benefit.

All (100%) of distributors with sales over $1B use these EDI transaction sets:

• 844 Chargeback

• 845 Bid Award/Change Notification

• 850 Purchase Order

• 852 Product Activity Data

• 867 Product Transfer.

Under-$1B distributors uniformly use (844) and 997 (Functional Acknowledgement).

CSOS, GS1, GLN and more

A similar situation exists with the Controlled Substances Ordering System (CSOS), an IT infrastructure set up by the Drug Enforcement Administration in 2006 to get away from the need to file paper in triplicate to complete a controlled-substance transaction; CSOS enables these transactions to occur electronically. Manufacturers are not direct parties to CSOS, as the responsibility falls mostly on the shoulders of distributors and their retail customers. HDMA’s survey shows that 45% of distributor customers (retailers, primarily) are using CSOS. Half of the distributor respondents use EDI transaction sets with both suppliers and with customers; another third use them only with customers.

Meanwhile, a data point that is almost to certain to change in next year’s survey is use of the Global Location Number (GLN), an identification standard established by the GS1 organization. GLNs are meant to be a unique identifier of locations to or from which supply chain movements occur. Many group purchasing organizations (GPOs) have mandated across-the-board use of GLNs by their member hospitals and the suppliers they do business with, with a “sunrise” date of January 2011 for deployment. Yet this year’s survey shows zeros all the way down the line—pharmacies, hospitals, physician offices and mail order houses—for GLNs. DEA registration numbers are widely used, as are the HIN (Health Industry Number). DEA and HIN numbers are used about as often as what appears to be the industry default—proprietary numbering systems. (The survey also shows that 17% of distributor customers use no location identifier at all, which makes one wonder how they get any shipments correctly delivered.) Meanwhile, manufacturers responding to this question indicate that between 11 and 33% of their customers use GLNs, if they use any identification system at all. DEA and HIN numbers also show up, but proprietary systems less often.

Serialization disconnect

Possibly the biggest disconnect between manufacturers and distributors is over use of serialization, the application of unique ID numbers to individual packages, which has been pushed by FDA and some states for years as a way to prevent diversion of shipments and the introduction of counterfeits (Pharmaceutical Commerce publishes an annual report on product security and serialization in its Sept/October issue.) According to the survey, 42% of manufacturers have short-term pilot programs going on employing 2D barcode (24%) or RFID (18%); and 29% have it running in a production mode. But 47% of members are not using serialization, and of those, nearly two-thirds have no plans to do so.

On the distributor side, however, essentially all distributors have done pilot tests with either 2D barcode or RFID, and 17% are scanning serialized, barcoded product on an ongoing basis. A third of distributors do not scan serialized, barcoded product and of those, only 25% have no plans to do so in the future. In the expected long march to establishing serialization systems for an anticipated 2015 deadline (in California), it appears that distributors are moving more aggressively than manufacturers.

The HDMA Factbook is available for purchase at www.shophdma.org. PC