Many life sciences companies are outsourcing their supply chains to 3PL (third party logistics) providers. It seems that everyone is getting into the 3PL business from public warehousing firms to trucking companies. When a life sciences company decides to outsource its supply chain, it needs to ensure that the 3PL understands the complexities of the business. Yes, life sciences is different from manufacturing and high tech. When selecting a 3PL, it is important to understand if the 3PL is committed to the life sciences vertical market and has the experience in managing the life sciences supply chain. Many 3PLs become extensions of the life sciences company’s staff. Here are some general questions that need to be considered when evaluating a 3PL for the life sciences supply chain. How was the 3PL formed? Did the 3PL acquire a smaller life science logistics company or are they part of a larger drug wholesaler? How many individuals on the staff have deep experience in the life sciences industry? Did they previously work for a wholesaler or a pharma company?
Three Areas To Focus On
QA is a critical area that needs an in-depth analysis when considering a 3PL. Is the 3PL committed to a quality assurance program? One telling trait is to look at an organization chart and determine where QA reports in the organization. QA should not be a part of operations; its staff should report directly to the president or CFO. One key area to review is what the annual budget is for QA and the number of people who are involved in the organization. A small QA organization may mean that the organization is not committed to the QA process. Business needs and requirements change, requiring CAPA (corrective action and prevention), SOPs and WIs (work instructions) to be updated. This takes an organizational commitment in time, money, and people across the organization.
Information technology is another area that must be considered. Does the IT staff understand the additional level of effort for documentation, testing, and implementation, and is it committed to maintaining a validated system? It is extremely important that the 3PL IT department understands 21CFR11 and cGMP. In addition, can the IT department provide visibility to product and shipments throughout the supply chain? Does an IT roadmap exist that summarizes the direction of the major IT projects over the next two to three years? Does the organization have a plan and budget for evolving technologies such as RFID, e-Pedigree, and serialization? Operations is another area that needs proper due diligence. Most 3PLs that truly understand the life sciences industry will have separate dedicated facilities and a separate workforce for their life sciences business. Life sciences products are high-value, temperature-sensitive goods that require someone who understands the processes, procedures, and work instructions. In addition, individuals need to be able to take the right corrective action when something happens.
Last, but not least, the financial health of the 3PL (ascertained by reviewing the company’s financials, Dunn & Bradstreet reports, annual audit report, etc.) must be a part of the due diligence process. Does the 3PL have the financial resources to be in the life sciences supply chain business? Do not underestimate the importance of having the right level of insurance (e.g. Who is their insurance carrier? Are they self-insured? What is their claims ratio? Have they paid out any large [$1 million or more] claims?). A lost shipment or spoiled product can cost millions of dollars. Whether we like it or not, accidents will happen, and it is not enough to meet the minimum requirements. For example a shipment may contain 10 cartons of a vaccine. The data loggers indicate five of the cartons were outside the ambient temperature range. The other five were in the questionable range. The minimum requirement would be to pay a claim on the five cartons. The right course of action would be to scrap all 10 cartons and pay a claim on the 10 cartons.
Those 3PLs that go above and beyond and take the right course of action when an error or accident occurs are the kind of partners you want to manage your supply chain. Overall, when selecting a 3PL to manage your supply chain, it is always better to spend the extra effort on due diligence.
James Bisaha is the managing partner of Logistics and IT Consulting. He has spent 30 years in the transportation and logistics industry.