Why the UPS-Merck Deal Won’t Hurt Wholesalers

Merck recently announced a new outsourcing deal in which UPS will be taking over Merck’s U.S. distribution operations. See UPS to Manage Most of Merck's United States Distribution.

Will this disrupt the U.S. distribution channel and impact drug wholesalers?

Nope.

As I see it, Merck has made a pretty a straightforward outsourcing deal. Merck will use UPS’ supply chain solutions group to run its pick/pack/ship warehouse operations and outbound distribution. UPS will eventually convert the two Merck facilities in Reno and Atlanta to multi-client operations.

In the Wall Street Journal article about the deal (UPS Gets Merck Contract), I said: “Wholesalers will remain the preferred channel because of the pricing dynamics in the pharmaceutical industry.”

Why? As many of you may know, large pharmacy buyers purchase through drug wholesalers as a way to get additional discounts on brand drugs. Since UPS does not take title (ownership) to Merck products under this outsourcing arrangement, product flow in the supply chain won’t change.

Drug wholesalers have many things to worry about – but logistical outsourcing deals are not even on my top 10 list for them.

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