DSCSA: The Special Role of the Third-Party Logistics Provider

The role of the third-party logistics provider (3PL) is highlighted under the Drug Supply Chain Security Act (DSCSA). A 3PL is not a wholesale distributor. The difference is inherent in the way the pharmaceutical industry works and the level of security demanded by the DSCSA.

A lot of industry works on a Just in Time (JIT) basis: the end user or consumer calls for the parts, equipment or other product on the brink of the event that makes it necessary. The drug industry works like that at one end; pharmacies, hospitals and other drug dispensers will order replenishments in the quantities they find most convenient when their existing stock is just about to run out. At the other end of the process (the manufacturing end), though, things are somewhat different. Whereas manufacturers in an increasing number of industries are, like their customers, focusing on JIT and not making something until it’s been ordered, Pharma manufacturers make drugs in large batches (aka lots) which are held until called for by the customer.

The only concern faced by a company that makes confectionery in large batches is the money they will lose if the sweeties are not kept secure and are stolen. In the drug supply business, the penalties imposed by the DSCSA if the whereabouts of any drug cannot be accounted for are severe and there is a need to keep the “buffer stock” (that is, the drugs that have been manufactured and are being held until someone places an order for them) completely secure.

It is open to any drug manufacturer to store finished goods in its own distribution center and only release them to the wholesale distributor when they are ordered, but many manufacturers prefer instead to have someone else look after them. The argument is: our skill is in developing and manufacturing drugs. Storage should be taken care of by someone who is expert in that field.

Hence the development of the 3PL. A distributor takes the finished goods from the manufacturer and stores them until they are instructed by the manufacturer to deliver them in fulfilment of customer orders received by the manufacturer. It is important to keep that distinction clear: storage is on behalf of the manufacturer; orders are placed on the manufacturer and not on the 3PL; the 3PL has negotiated a contract with the manufacturer under which the 3PL agrees to store the goods in safe condition and deliver them to a specified place (which is likely to be a wholesale distributor) when asked.

Note that in this whole process ownership of the goods remains with the manufacturer and that does not change until it passes to whoever the 3PL delivers them to. This remains true even though all of the paperwork may originate at the 3PL because it is often the 3PL who invoices the wholesale distributor on behalf of the manufacturer. In some cases, the 3PL actually receives payment on behalf of the manufacturer.

This is significant because the DSCSA requires that changes of ownership (all changes of ownership; there are no exceptions) should be recorded with a Transaction Information (TI), Transaction History (TH) and a Transaction Statement (TS). But ownership never passes to the 3PL.

Because a 3PL never owns the goods, they are not in theory required to be involved in the passing of TI, TH or TS, but in practice they are. What they can’t do is take from the manufacturer the responsibility under the DSCSA for generating, storing and retrieving the documentation.

It follows that the contract between the manufacturer and the 3PL is of high importance. In practice, the manufacturer will impose on the 3PL a contractual requirement to be responsible for the accuracy of all transaction paperwork and for the security of the goods while in the 3PL’s possession. The manufacturer cannot transfer to the 3PL the manufacturer’s own responsibility for security but can, will and does ensure that the penalties faced by the 3PL for any lapse in security are onerous in the extreme.

As will be seen, there are various ways to look at the 3PL’s position. It could be any of these:

  • Outsourced order fulfilment
  • High security warehousing
  • Shipping and invoicing documentation
  • Physical tracking, at present by lot/batch number but ultimately by package
  • Annual reporting to FDA

In fact, of course, it isn’t any of those; it’s all of them. Given the importance of keeping prescription drugs safe and the seriousness with which the FDA regards them, there should be careful checking of the 3PL’s competences and systems by the manufacturer before a contract is signed and then on a regular basis afterwards. 3PLs have to be licensed and the existence of a license will give confidence but the FDA’s stance is clear: the responsibility for ensuring that all goes well lies first with the 3PL and then with the manufacturer and cannot be passed off onto the FDA. The agency will simply not accept that.

Free DSCSA Evaluation

Contact TrackTraceRx today to receive a free evaluation of your DSCSA current policy and procedures. This free consultation will allow you to have a piece of mind that you are following the correct procedures in order to meet ALL DSCSA requirements. TrackTraceRx will also provide you with a FREE Standard Operating Procedure (SOP) template which is required by the DSCSA during a FDA inspection.

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