McKesson : 10 Pharmaceutical Distribution Trends to Know

For drug manufacturers, pharmaceutical distributors are the important link between products and the pharmacies, health care providers and patients who need them. Culled from the HDA Factbook: The Facts, Figures and Trends in Healthcare (2017-2018) are 10 distribution trends and benchmarks that manufacturers should know as they craft their future growth and expansion plans.

The HDA Research Foundation published the 87-page report. The foundation is a nonprofit affiliate of the Healthcare Distribution Alliance.

1. The percentage of pharmaceutical sales flowing through distributors is increasing

In 2016, $440.2 billion in pharmaceutical sales were made through distributors. That's up nearly 45 percent from 2013, when the figure was $304.6 billion. In 2013, that year's sales total represented 90.1 percent of all pharmaceutical sales. By 2016, that percentage had jumped to 95.7 percent.

2. The average number of manufacturers per distributor is declining

Despite the increase in pharmaceutical sales to customers through distributors, the average number of manufacturers that each distributor handles is dropping. In 2016, the average number of manufacturers from which one distributor purchased goods and services from was 1,211. That's down from 1,216 in 2015 and 1,474 in 2014.

3. Specialty drugs are representing a larger percentage of total sales through distributors

Of all pharmaceutical sales that distributors handled in 2016, 98 percent were for prescription drugs, with the remaining 2 percent representing non-prescription drugs, health and personal care items, durable medical equipment (DME), home health products and general merchandise. That's roughly the same sales ratio as the previous year. But, the percentage of sales represented by brand-name non-specialty drugs slipped to 65.9 percent in 2016 from 67 percent in 2015, while the percentage of sales represented by brand-name specialty drugs rose to 18 percent from 16.1 percent over the same period.

4. Hospitals and specialty pharmacies are becoming bigger distributor customers

Chain pharmacies continue to be the biggest customers of distributors. In 2016, 42 percent of all sales through distributors were made by chain pharmacies. That's down slightly from 42.5 percent in 2015. Nipping at market share are hospitals/HMOs and specialty pharmacies. In 2016, hospitals/HMOs made 15.8 percent of all sales through distributors, up from 14.5 percent in 2015. Over that same time period, purchases by specialty pharmacies inched up to 1.4 percent from 1.1 percent.

5. The average number of SKUs per distributor is increasing

The average number of SKUs, or individual products, per distributor rose by 5 percent to 54,692 in 2016 from 52,066 in 2015. Of the SKUs in 2016, 23,768 were for prescription drugs and 30,924 were for non-prescription health products. The average number of brand-name prescription drug SKUs per distributor dropped 1.8 percent to 6,265 in 2016 from 6,383 in 2015. The average number of generic prescription drug SKUs rose 1.9 percent to 16,283 from 15,975 over the same period. And the average number of SKUs for DME and home health care products jumped nearly 23 percent to 9,090 from 7,406.

6. Barcoding at the individual item level is increasing

The smaller the sellable unit, the more likely it will be barcoded. Manufacturers barcoded an average of 74 percent of individual items like pill bottles in 2016, compared with 71.4 percent of product cases, 51.5 percent of product pallets, and 34 percent of product shelf packs. Distributors' ability to scan barcodes, however, varied by product level. For example, 83.3 percent of distributors can scan individual items and 83.3 percent can scan product cases, but only 40 percent can scan pallets and shelf packs, respectively.

7. Overstocking continues to be the No. 1 reason goods are returned to distributors

When customers return pharmaceutical and other health products to distributors, by far the most common reason is overstocking. In 2016, overstocking of products caused 88.3 percent of returns to distributors, compared with 88.9 percent in 2015 and 77.6 percent in 2014. A distant second reason in 2016 was short-dated products (2.4 percent), followed by outdated products (1.9 percent) and damaged products (1.1 percent).

8. Electronic ordering systems remain dominate form of product procurement for customers

Software-based and web-based order-entry systems are by far the most common customer ordering platform used by distributors. In 2016, 93 percent of all distributors offered one or both types of electronic ordering systems to customers to buy products. That's up from 92 percent in 2015 and 91 percent in 2014. A distant second was phone ordering, which still was offered by 6 percent of distributors in 2016. Only 1 percent accepted orders by fax that year.

9. Data management services are essential business intelligence offerings to manufacturers

Of all the different programs and services that distributors offer, data management services are the only ones that all distributors typically provide to both manufacturers and other customers. That means distributors provide sales, inventory and returns data to manufacturers and other customers. The four other most common programs and services that distributors offered to manufacturers in 2016 were: promotional material distribution (67 percent); rapid distribution for new product launches (67 percent); special handling distribution services (67 percent); and specialty pharmacy (60 percent).

10. Inventory management agreements are common supply chain offerings to manufacturers

Like data management services, distributors had inventory management agreements with their manufacturers in 2016, as they did in both 2015 and 2014. Other types of supply chain management agreements in 2016 were: collaborative planning, forecasting and replenishment (offered by 66.7 percent of distributors); vendor-managed inventory deals (33.3 percent of distributors); and consignment arrangements (16.7 percent).

Drug manufacturers should weigh these 10 pharmaceutical distribution trends and benchmarks when planning their future clinical and business needs.

Related: Learn more about McKesson's pharmaceutical distribution services for drug manufacturers