The pharmaceutical industry is one of the top-performing industries globally. It was worth an estimated $1.2 trillion in 2020.

At the center of the industry is the supply chain. A solid supply chain helps ensure medications are able to reach people far and wide. You should understand the importance of supply chain management if you want to have a better understanding of the industry.

Fortunately, we’re here to help. In this guide, we’ll tell you how the pharmaceutical supply chain works.

Basics of the Pharmaceutical Supply Chain

Supply Chain

Pharmaceutical supply chains aren’t much different than the supply chains of other industries. There are a few main steps that the supply chain follows:

  1. Pharmaceuticals are made by manufacturers
  2. Drugs are sent to warehouses and wholesale distributors
  3. The drugs are stocked in pharmacies

It’s important to know this basic process to manage the supply chain in the industry. Improving cooperation and communication between the parties in the supply chain is essential. Doing so will help everything go smoothly.

There’s quite a lot happening behind the scenes before a product reaches the consumer. It’s important that every part of the process is managed well.

Main Parts of the Supply Chain

So who are the key players in the supply chain, and what are their responsibilities? Here’s what you should know.


Before selling a product to an end consumer, the product needs to be manufactured.

The manufacturing process is complex. It includes many different activities that relate to the production of medications.

As part of the process, it will be necessary to transport raw materials. Manufacturers also work carefully with chemical compounds and active ingredients.

Manufacturers operate in many different ways. Some will handle their responsibilities differently than others will.

There are two main types of drug manufacturers. This includes brand-name drug manufacturers and generic drug manufacturers.

Both types of manufacturers operate similarly but are not quite the same. Brand-name manufacturers will invest large amounts of money into research and development. Generic drug manufacturers usually won’t have this as an expense.

It’s also important to note that many drug companies will perform all manufacturing in-house. Others will outsource many activities instead.

Manufacturers are a key part of the supply chain. They’re also the part that has the biggest say over what the prices for medications will be. They’ll consider costs and demand carefully when determining the price for medications.


Also important to a supply chain are wholesale warehouses and distribution centers. A distributor will store products in a warehouse. They’ll then distribute them to retailers.

Distributors and pharmacy suppliers serve as middlemen between retailers and manufacturers. This allows manufacturers to ship medications in bulk instead. It prevents them from needing to ship their products to the individual pharmacies and retailers that want to sell the products.

Some manufacturers will ship directly to retailers. Many prefer to work with distributors instead.

There are various types of warehouses and distribution facilities. Some are large distribution centers that are owned by major drug companies. Others are regional distribution centers that work independently of the manufacturer.

Smooth warehouse and distribution center operations need solid resources. They also require reliable transportation activities.

Supply Chain Work


Retailers in the drug supply chain vary greatly. There’s a wide range of retailers.

Retailers include large box stores such as Wal-Mart and Target. Drugs are also sent to chain pharmacies such as Walgreens and CVS.

Recipients also include independent and locally-owned pharmacies. Retailers may also include internet and mail-order pharmacies as well.

Retailers and pharmacies compose the largest part of the prescription drug market. But it doesn’t stop there. Many drugs go to healthcare organizations as well.

Aside from retailers, drugs may be shipped to non-retail organizations and healthcare providers. This includes hospitals, clinics, elderly care facilities, and more.

Pharmacy Benefit Managers

Also involved in the medicinal drug supply chain are pharmacy benefit managers (PBMs). PBMs do many things to improve the supply chain. They’re a valuable part of it.

One of their main duties includes the management and development of health payer drug formularies. It also includes the negotiation of drug prices with manufacturers.

A PBM will focus on improving savings. They’ll also improve access and safety for consumers and organizations. They’ll perform other duties as well.

PBMs usually won’t be in direct possession of any prescription drugs. Yet, they serve an important role and work to improve the supply chain at every level.

In some cases, PBMs may provide mail-order services. In these instances, they’ll have possession of prescription drugs.

Improving Pharmaceutical Supply Chain Management

Strengthening the supply chain and taking steps to manage it well is essential. There are many ways that you can do this. It’s important to follow best practices.

One of the main ways to improve the supply chain is to increase visibility. You should increase traceability as much as possible. It’s important to ensure that your supply chain makes use of electronic communication.

Fostering connection through a digital business network can be helpful. This will improve collaboration and prevent pharmaceutical supply chain issues. It will ensure that you can see the end-to-end supply chain.

Supply Chain Management Best Practices

The increased visibility will allow you to make quicker decisions and changes as necessary. It will help ensure that everything operates smoothly.

Enabling real-time information sharing and inventory visibility can help with supply chain management. It can help streamline the process.

Understanding the Pharmaceutical Supply Chain

If you want to understand the pharmaceutical supply chain, be sure that you take the above information into consideration. There are many important entities in the supply chain. This includes manufacturers, distributors, retailers, and PBMs.

Are you looking for more information on the pharmaceutical industry? Read over our blog now to discover more helpful guides.

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