Third Largest Expense
Delivery spend, despite being the third largest cost bucket for Long Term Care (LTC) pharmacies – trailing only drugs and labor – remains remarkably opaque and under-managed. This is primarily due to its outsourced nature and the inherent complexities of last-mile logistics, an area where pharmacies, by design, lack expertise and the necessary tools for effective oversight. change
The P & L Blind Spot: A Significant Expense with Minimal Visibility
For many LTC pharmacies, delivery costs represent a substantial drain on profitability, often accounting for 5-10% or more of total operating expenses. Yet, unlike drug procurement (which involves intricate formularies and purchasing agreements) or labor management (with sophisticated scheduling and payroll systems), delivery spend is largely a “black box.”
Here’s why this lack of oversight is so problematic:
- Reliance on Imperfect Data: The primary source of information for delivery costs is the weekly invoice from third-party couriers. These invoices often present aggregated data, lacking the granular detail needed for true analysis. They may not accurately reflect:
- Route Sequencing: The actual order of stops on a route, which directly impacts efficiency and miles driven.
- Miles Between Stops: Discrepancies between billed miles and actual driven miles are common, leading to overcharges.
- Waiting Times: While some invoices may include wait times, their accuracy and the reasons for delays are rarely verifiable.
- Failed Deliveries/Redeliveries: The true cost of re-attempts and their impact on overall efficiency can be difficult to discern.
- Special Requests/Surcharges: Ad-hoc requests or surcharges for specific delivery conditions may not be clearly itemized or justified.
- Logistics is Not a Core Competency: LTC pharmacies are healthcare providers. Their core mission revolves around dispensing medications accurately, safely, and efficiently to vulnerable patient populations. This requires deep expertise in pharmacy operations, clinical protocols, and regulatory compliance. Logistics, with its focus on route optimization, fleet management, and real-time tracking, is an entirely different discipline. Pharmacies simply do not possess the in-house talent or the specialized software (e.g., advanced routing algorithms, telematics systems) to effectively manage this aspect of their business.
- Reactive vs. Proactive Management: Without robust data and tools, pharmacies are forced into a reactive mode when it comes to delivery costs. Issues are often only identified after an invoice arrives, making it challenging to dispute charges or implement corrective actions in real-time. This contrasts sharply with other areas of the business where performance metrics are constantly monitored and adjusted.
- Missed Opportunities for Optimization: The lack of oversight means significant opportunities for cost savings are being missed. These could include:
- Route Consolidation: Identifying opportunities to combine deliveries to nearby facilities or patients.
- Optimized Routing: Leveraging technology to determine the most efficient routes, minimizing miles and drive time.
- Carrier Performance Management: Benchmarking courier performance and negotiating better rates based on actual service levels and efficiency.
- Identifying Inefficient Practices: Pinpointing reasons for excessive wait times, repeated delivery attempts, or inefficient scheduling.
In essence, LTC pharmacies are operating with a significant blind spot on their Profit and Loss statement. Delivery spend, a critical and substantial expense, is largely unexamined, relying on external parties for both execution and reporting. This not only impacts profitability but also hinders the overall efficiency and scalability of their operations, leaving them vulnerable to inflated costs and missed opportunities for strategic improvement. Addressing this oversight requires a fundamental shift in how pharmacies view and manage their delivery ecosystem, potentially through the adoption of specialized logistics tools or a re-evaluation of their outsourced delivery model.