Arbour Group Blog

Third Party Logistics (3PL) Providers

Pharmaceutical companies rely heavily on third party logistics providers as critical components of their supply chain. With the pharmaceutical industry being one of the most strictly regulated industries globally, 3PL providers must adhere to applicable guidelines established by government and state agencies to ensure pharmaceutical manufacturers that they are in compliance with these regulations.

External Threats

The World Health Organization recently reported that nearly 10 percent of pharmaceutical products may be counterfeit and that two percent of drugs manufactured in the U.S. are consistently diverted or stolen (http://www.contractpharma.com/issues/2007-11/view_features/the-high-cost-of-selecting-a-low-cost-3pl-provider/#note2). Consequently, pharmaceutical companies are at risk for losing as much as half of their revenue associated with the transportation of products. This means that 3PL providers licensed to work with pharmaceuticals must implement and practice superior forms of supply chain security to ensure products are transported without interference from criminal activity.

Internal Threats

Internal deficiencies also threaten the viability of pharmaceutical companies involved with non-compliant 3PL providers. Inadequately developed systems, lack of employee discipline and other quality control issues can easily arise anywhere along the supply chain artery that compromises the integrity of life science products. In addition, most non-licensed providers typically fail to properly train and educate employees who must handle pharmaceutical/life science products that demand specialized treatment or suffer possible degradation during transportation. Deep inefficiencies affecting a 3PL provider who collaborates with pharmaceutical companies can cost life science industries millions in revenue as well as risk implementation of steep fines for noncompliance.

Drug Quality and Security Act

In the near future, 3PL providers will need licensing as described in the Drug Quality and Security Act. Specifically, Title II of this act–Drug Supply Chain Security–"establishes requirements to facilitate the tracing of prescription drug products through the pharmaceutical supply distribution chain (http://beta.congress.gov/bill/113th-congress/house-bill/3204). In fact, the FDA plans to enact reporting obligations by 3PL providers to the FDA starting November 27, 2014 (http://pharmaceuticalcommerce.com/supply_chain_logistics?articleid=27130).

For 3PL Providers, the DQSA Means Implementing Several Important Changes:

1. Third party logistics companies will be subject to a federally regulated system involving the exchange of "traceable information" and verification of all transaction histories.

2. Third party logistics providers will no longer be able to operate under state licensing requirements that are "inconsistent with or less stringent" than requirements established by federal licensing standards.

3. The redefining of 3PL providers states that: "a 3PL provider…indicates an entity that coordinates…logistic services of products in interstate commerce…but does not own the product…or have responsibility to direct the disposition or sale of the product" (http://www.fdli.org/docs/dqsa-2014/e-jungman_fdli-dqsa-2-20-14.pdf?sfvrsn=0).

Establishment of National Licensure Standards for 3PL Providers

Licensing requirements for 3PL providers under the Drug Quality and Security Act include:

They must have a valid license from the state in which the drug is being distributed or is being distributed into. If a state cannot license according to federal standards, then the 3PL provider must obtain a license from the U.S. FDA.

In the event a state cannot license a 3PL provider, the FDA will implement a third-party accreditation program. However, according to the guidelines of the DQSA, "if no accreditor is approved, the FDA will license a 3PL provider directly" (source).