Is the pharmaceutical supply chain set to be revolutionized?

The pharmaceutical supply chain is set to undergo a big change. Walgreen, the largest drug retailing chain in the US, Alliance Boots and AmerisourceBergen have signed a $400bn 10-year agreement that will create what Forbes magazine coined the “Earth’s Drugstore”. Not only will the agreement create “Earth’s Drugstore”, but it appears it is set to create one of the largest and most influential global supply chains.

As pressure mounts on the healthcare industry to cut costs, manufacturers, distributors, retailers and all others involved in the industry are looking for ways to increase profitability. In 2012, Walgreen took a 45% stake in Alliance Boots as part of a three year merger.

Alliance Boots was formed in 2006 through a merger of the British high street pharmacist Boots Group and the pan-European wholesale and retail pharmacy group Alliance Unichem. It has locations in 25 countries and its operations are split in three areas – health and beauty retail, pharmaceutical wholesaler and contract manufacturing. Meanwhile, in its attempt to expand globally, AmerisourceBergen acquired World Courier, a global specialty logistics provider in clinical trials.

AmerisourceBergen has serviced Walgreen’s specialty business for years. However, as it gets set to replace Cardinal Health, it will expand its services to include distribution of branded and generic pharmaceuticals to Walgreen’s 11,000-plus retail stores, mail order and specialty pharmacies. Daily deliveries of drugs will also be provided to Walgreen’s stores, thus reducing inventory in Walgreen’s existing warehouses. Previously, Walgreen had its own network in which it distributed more than 80% of its own drugs, but over time this will all be transferred over to AmerisourceBergen.

The three companies have also agreed to collaborate and share best practices to provide manufacturers with integrated solutions for global clinical trial logistics and “innovative” global 3PL services.

Another interesting part of the agreement is that Walgreen and Alliance Boots will have the right to invest up to 23% in AmerisourceBergen. Combined, the three companies hope to provide a force in which it is able to negotiate pricing with manufacturers and pass those costs on to consumers world-wide.

Partnerships such as this are likely to not only increase due to rising costs and increasing government regulation, but they are also likely to increase competition with global logistics providers such as DHL and UPS.

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