Meeting the (supply and) demand

Calling UPS a process oriented company is an understatement. For decades the company has strived to turn the finer logistical points of shipping into an art form. And with 46 health care integrated facilities in their distribution network, and unprecedented mergers and acquisitions happening in the health care industry, UPS intends to expand its logistical presence in the medical realm.

The company established its WorldPort, (headquarters) in Louisville, Kentucky, in the middle of the U.S. From that hub, it can reach 62 percent of the country in two days using ground transportation. But perhaps more incredible are the 130 aircraft which land there nightly, picking up and dropping off millions of packages at destinations all over the world.

Just 2.8 miles away from the behemoth that is WorldPort, UPS has established the Louisville Technology and Logistics Center (LTLC) where their health care footprint is increasingly making an impact on the pharmaceutical supply chain, as well as medical devices transport industry. The logistics and distribution emphasis began in 1996 and around 2005, the company started to make a concerted effort in health care.

Behind the scenes at the UPS Louisville Technology and Logistics Center WorldPort’s peak activity hours fall squarely in the dead of night. UPS aircrafts fly in from the four corners of the world, converging upon Kentucky, and their cargo is unloaded and sorted and reloaded in a mesmerizing feat of industrialism. Conveyer belts run in every direction, robots read barcodes, and employees push enormous containers across wheeled surfaces towards their next transfer. Many of the employees at WorldPort are local students who have their college education subsidized by UPS in exchange for their hard work.

UPS has a network of over 950 field stocking locations in more than 125 countries. Traditionally, these locations have been used for critical parts deployment with high tech and industrial sectors, but they are currently in the process of validating a number of those locations to accommodate medical devices. That shift towards health care may have serious implications for the company, and for health care at large. To get a better understanding of what it all means, HealthCare Business News took a tour of the LTLC.

Behind the brown curtain
The jaw-dropping enormity of WorldPort may undermine the vastness of the neighboring LTLC, but both spaces are huge by almost any earthly definition. Dan McKenna, UPS operations director, led us through one of several health care buildings; 800,000 square feet, with 500,000 dedicated to UPS health care customers.

Walking through the LTLC is not totally unlike walking through a Costco. A huge warehouse swallows up any single human presence in the vastness of its walls. Boxes containing boxes containing boxes are all stacked up in rows and aisles like an endless lending-library of medical packages. In some cases, the boxes are covered in a red bag, a literal ‘red flag’ indicating the content is not to be shipped at this time. UPS has a motto for its health care division: it’s a patient, not a package. That sentiment is echoed by the laminated headshots at the end of each aisle, giving a name and a face to the person in charge of the products shipping from that section.

A workforce of about 3,000 fulltime, non-union workers keep the campus running night and day. Depending on seasonal demands, those workers are capable of leveraging the workloads of various customers through flexible training. “Some customers have five or six employees, but during peak-period they need up to 100 employees,” says McKenna.

This didn’t all happen overnight. “We’ve spent the last 15 years building out our health care capabilities set,” says John Menna, UPS vice president of global healthcare strategy. Menna says the solutions they have developed in partnership with their customers are highly tailored to reduce operating costs, increase operational efficiencies through their supply chain, and lower inventory carrying costs.

Part of what allows UPS to invest so much in their health care customers is the loyalty they get in return. “We tend to push for fairly long agreements with our customers,” says Menna, “typically three to five years, maybe the average is about three.”

“We’ve been told that our solutions have reduced costs by as much as 15 percent for total logistics; not just transportation costs per se, but inventory management, transportation, contract logistics, distribution, and storage,” says Menna. He cites illustrating those benefits to potential customers with similar business models and supply chain concerns as a key part of the UPS health logistics plan moving forward.

Building a three party system
UPS has always had wholesaler licenses, even though the company is not a wholesaler. The same logic extends to their involvement in pharmaceutical and medical devices; as a third party they still need proper documentation. At one point during the tour, McKenna described a direct-to-patient insulin pump UPS has started shipping.

With direct-to-patient, McKenna says the company is getting into a whole new world of regulations—and because it’s not a consumable, the licensing is a little less complicated. It can be done with pharmacy oversight versus a pharmacist touching every order going out. “That knocks off about 800,000 to a million dollars in pharmacist costs, and also means product can ship faster,” says McKenna. The manufacturer of the pump makes sure there is someone at the facility at all hours to take emergency orders .

“On average, our facilities carry about 75 licenses to enable us to transport devices and narcotics. When you get into the direct to patient operations you’re probably adding another 30-40 on top of that,” says McKenna, who acknowledges the UPS regulatory team in Delaware for keeping the company updated on ever-changing licensing requirements.

As a third party logistics (3PL) provider, UPS is in a unique position. Many of the rules governing health care are being revised and UPS participates on government boards that actively work to shape the legislation that will affect their business. “It isn’t just about the retailer and the wholesaler, with (3PL) you neither own the product nor control where it’s sold to,” says McKenna. “We simply facilitate the movement; we needed to find our own niche market in that, and help get the idea of a 3PL defined in that new legislation.”

One hot button aspect of those logistics is the serialization of drug packaging, a form of monitoring that the government and the transport industry are increasingly leaning toward. McKenna says that’s up to the customer. “Ideally it should be done at the point of manufacture. But for inventory already in flow, could I go in and relabel some of that inventory? Absolutely.”

The main things they monitor at the facility, says McKenna, are part number, lot, and expiration date. It it’s a medical device they also keep track of serial numbers. “In the future everything will have some type of serial number on it.”

Although UPS prides itself on being a multi-client facility, they also run the warehouse managements systems (WMS) unique to individual customers if it’s what the customer wants. But Dirk van Peteghem, UPS marketing vice president of healthcare logistics, says that kind of customization can limit the benefits of being a multi-client facility in terms of sharing assets and leveraging manpower.

The cold chain
As one makes their way through these health care warehouses they become accustomed to the frequent honking of horns. That’s how the drivers of the material handling equipment (MHE) vehicles announce themselves when emerging from an aisle or making a turn.

“Certain people are trained and certified to run different MHEs and nobody veers off the walkways to cross under a rack,” says McKenna, as he takes us past the inventory for a large manufacturer of flu vaccines. McKenna explains that this is the end of the flu season for them. During the year there are about five people on that particular account but during the three month peak period it jumps to about 80 or 90.

“Most of this product comes in from Europe. It gets loaded on a UPS brown tail plane in Germany, and it gets unloaded in Louisville. Those containers get loaded on a trailer, brought over here, we unload them in this building on a ball deck, and we open up the containers for the first time. From there,” says McKenna, “we put the pallets into the cooler and then stop the temp tale.”

The temp tale is what tracks that temperature through the entire process. The UPS employees record those temp tales and give them to the customer’s quality assurance department. The QA department must then approve the temperatures before the product can continue on its way to being distributed. The flu vaccines are stored at two to eight degrees (Celsius). During transportation, gel packs keep the inventory within that range.

“The packaging does a lot of the work,” says McKenna. For some products, there are -80 degree freezers which can only be opened three times a day for two minutes at a time. In some instances, UPS will custom build a freezer for the specific needs of a customer. In the building we toured they also had 20 degree freezers, a hazmat room, and an in-house pharmacy. The pharmacy is operated by a third-party and can take prescription orders, fill them, and ship them directly to the customer.

A new shipping option from UPS, called Temperature True Cryo, allows for transporting products at negative 150 degrees Celsius by using liquid nitrogen stored in dry vapor form. The container will retain that temperature for up to ten days while the product is making its way to its destination.

High level security
At UPS LTLC there is no mistaking that you’re within a highly secure facility. There are enormous vault-like rooms which only a select few people are ever allowed into. There are processes and procedures A new shipping option from UPS, called Temperature True Cryo, allows for transporting products at negative 150 degrees Celsius by using liquid nitrogen stored in dry vapor form.

To secure cargo in ground transport, UPS was instrumental in getting legislation passed in Kentucky that drew distinctions between regular auto thefts and stealing a trailer that might have millions of dollars worth of cargo in it. They also do not drive around in trucks that specify their contents, for example no trucks say UPS Healthcare. By remaining anonymous it becomes more difficult for a potential criminal to gauge the value of the truck’s contents.

For air traffic they monitor global politics. “It’s all information that feeds into our control towers,” says van Peteghem, “We catalogue political unrest and keep that information available to our operators to determine where trouble spots are.” But examining world politics informs UPS in more ways than just security.

Growing markets
“Growth is in emerging markets,” says van Peteghem, “Clients want us to expand into new countries. We will build it or buy it, whatever seems right.” When doing that, he says it’s important to time the construction responsibly.

“We’ve had situations where we put a facility somewhere because there’s an interesting tax regulation that says if you build your warehouse here then you’ve got a massive tax benefit,” says van Peteghem, “then a few years later, the tax regulation changes and it no longer makes sense to be in the middle of the jungle where we’ve put up the building.”

Menna says GDP regulations in Europe have been accepted by most European companies, but the interpretation of those regulations remain unclear. “To some degree, they say products need to be moved and stored according to the temperature range on the label, but then the manufacturer has stability data that clearly illustrates that this product can be exposed to higher temperatures, so it’s unclear what exclusions are allowed and how they will be enforced,” says Menna.

“You might require a different distribution facility in every country due to different labeling, language, and regulatory requirements,” says Menna. “We are sorting products centrally in one warehouse in Western Europe and as orders are being placed, depending on the destination, we do the relabeling.”

One international trend that UPS has noticed is the growing cost disparity between shipping specialty therapies and standard medical products. “The push from the ACA and NICE in the UK is that in order for us to reimburse a product it needs to be differentiated enough from something already in the marketplace,” says Menna,

“It needs to be justified based on clinical data to support it.” Products that don’t fit that description face a lot of cost pressures. The specialty products, on the other hand, emphasize precision and a zero-tolerance for failure.

As the health care industry continues to undergo major revisions, many companies are rethinking their supply chain strategies. Whether or not it makes sense to utilize a third party logistics provider such as UPS may depend on the company, but the flurry of activity taking place in Kentucky may indicate a growing number of providers are happy to leave the shipping to someone else.