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HIGHLIGHTS
- The healthcare logistics sector is positioned to grow exponentially in the next few years due to demographic changes and favorable market conditions.
- Logistics companies are increasingly trying to enter this space through acquisitions and greenfield investments
- It is crucial for logistic companies to understand the healthcare-related dynamics and invest in critical technologies like internet of things (IOT)-driven warehousing and supply chain traceability to succeed in this segment.
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The potential in healthcare logistics
Healthcare logistics can cross centi-billion dollars
Healthcare logistics encompasses the whole supply chain—from hospitals, diagnostics centers, manufacturing plants of healthcare products and medical equipment, to the front doors of patients, hospitals, dispensaries, and other healthcare facilities.
After COVID-19 exposed vulnerabilities in supply chains, healthcare logistics organizations started relooking at their business strategies. The disruption that the pandemic caused underlined the need for investments in temperature-controlled storage facilities, robust inventory management, agile vaccine distribution networks, and advanced tracking and monitoring systems, among others.
Certain traditional logistics providers realized the pivotal role they could play in rectifying the deficiencies and help build a resilient healthcare supply chain capable of responding swiftly to unforeseen challenges. They are also encouraged by the huge market potential. The global healthcare logistics market is experiencing substantial growth, presenting significant opportunities for stakeholders and global economy.
Growth factors
Logistic companies are uniquely positioned to cater to healthcare needs
Logistic companies possess a lot of capabilities and infrastructure that will help them enter the healthcare space quickly. Some of them include:
They have the last-mile delivery capabilities to directly provide home delivery services; They also have the capability to collect items from residential and commercial properties. This is very crucial in the delivery of medical products, samples, test reports.
They have a huge warehousing capacity and capability to manage the special requirements of healthcare and medical logistics. They can provide proper storage facilities for medical equipment and help create bundles of medicines, equipment, and lab testing kits as per the needs of individual patients.
They also possess the necessary resources to conduct due diligence and ensure regulatory compliance, and put in place the standard operating procedures required. Stricter regulations and standards for transportation and storage of medical products are pushing companies to adopt more sophisticated logistics solutions.
Advancements and innovations in logistics technology, such as real-time tracking and automation, will enhance the efficiency and reliability of healthcare supply chains.
The need for temperature-controlled logistics is growing, especially for vaccines, biologics, and other temperature-sensitive products. Logistic companies already have advanced cold storage and transport mechanisms to cater to this segment.
Logistic companies can also enable direct D2C sales of original equipment manufacturers (OEMs) who can benefit by getting more margins for their products. They can partner with hospital and diagnostic labs to transport specimens and samples for periodic testing. They can create a special focused team for transporting organs adhering to the rules of Organ Procurement and Transplantation Network (OPTN) and United Network for Organ Sharing (UNOS). The possibilities are endless.
Logistics companies like UPS, FedEx, DHL, and Kuehne + Nagel, with their far-reaching presence and network, as well as with their established infrastructure and expertise, are uniquely positioned to become significant healthcare ecosystem orchestrators. By bringing in their supply chain and digital technology prowess, they can build a healthcare logistics platform that is compliant with the regulations and requirements of the healthcare industry. UPS, for instance, aims to double its healthcare logistics business to $20 billion by 2026. In fact, a great majority of its recent acquisitions have been companies dealing with specialized healthcare logistics.
Advantage logistics
Increased life expectancy creates a huge market
Life expectancy is experiencing a remarkable upswing, with people living longer and healthier lives than before. While it is a multifaceted phenomenon driven by factors such as better lifestyle choices, and socioeconomic headways, the biggest factor contributing to prolonged lifespans is the progress in medical science. Breakthroughs in early detection, treatment as well as surgical interventions, along with accelerated vaccine development and cutting-edge pharmaceuticals are shielding the populace from the ravages of once-debilitating illnesses.
The number of people aged 65 years or older worldwide is projected to more than double from 761 million in 2021 to 1.6 billion in 2050. In 2021, 1 in 10 people worldwide were aged 65 or above. In 2050, this is projected to 1 in 6. (Source: UN Department of economic and social affairs- World Social report 2023).
The result is a burgeoning aging demographic that is set to become a significant consumer market of healthcare services, presenting a profound shift in healthcare dynamics. This shift not only poses challenges but also offers opportunities for advancements in healthcare logistics: efficient transportation, storage and distribution of pharmaceuticals, diagnostics, treatment, medical supplies, and equipment.
Hurdles to success
Healthcare logistics will be challenging and highly competitive
An analysis using Porter’s five forces model indicates the healthcare logistic industry will be highly competitive (see Figure 1).
Figure 1
Porter’s five forces model suggests healthcare logistics will be highly competitive
Figure 1
The Porter’s 5 forces study tells us that competitive rivalry is high, indicating low margins. The threat of new entry and buyer power is medium, which tells us that companies will have to provide consistent quality in their service. Companies will also need to focus on retaining their customer base by providing various promotions and add-ons. They will have to concentrate on building and maintaining relationships with suppliers to ensure they are capturing niche healthcare providers and specialized medical services.
Ecosystem integration
Logistics companies will be a critical link in healthcare supply chain
It is imperative for logistics companies to carefully strategize the entry and growth plan to be successful in healthcare services. They will have to figure out what the healthcare logistics ecosystem will entail, and how a robust and connected network and model that will we be successful should be created.
There is no one-size-fits-all solution, and each organization will have to deliberate on and design their approach to creating ecosystems based on their vision, operations, capability and timeline.
The diagram below (Figure 2) illustrates the ecosystem:
Figure 2
An organization’s vision, operations, capability, and timeline should determine its approach to an ecosystem model
Figure 2
The ecosystem comprises healthcare providers—hospitals, clinics, diagnostics labs, pharma companies, researchers, the medical OEMs; and receivers—patients, research participants and the general public. The ecosystem also involves influencers—thought leaders, the society, economy and the environment; and also the controller—governments, policy makers, industry groups, along with the logistics facilitators
Healthcare logistics providers will be the integrators in this ecosystem and will cater to various segments, including pharma, contract drug manufacturers, drug distribution, new drug research and development (R&D), medical devices companies, blood banks, laboratories, and hospitals. The logistics services required are unique such as GPM (good manufacturing practices)-compliant depot network and hubs for clinical drug products, biological sample storage and distribution, DTP (direct to patient), home healthcare, and clinical trials. Additional services required include biological kit production, diagnostics, medical device storage, distribution, and inventory management, expedited delivery, and blood and organ transportation.
While the imperative for traditional logistics providers to focus on healthcare logistics has never been clearer, facilitating the seamless delivery of medical supplies contributes directly to improved wellness. It is a strategic pivot that not only aligns with the needs of our times but also represents a golden opportunity for the logistics industry giants to play a pivotal role in shaping a healthier, more resilient future. Therefore, the convergence of logistics expertise with healthcare demands is not just a business decision, it should be seen as a commitment to operate as socially responsible entities, with a mission that extends beyond profit margins.
