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Hi, I'm Kelly Barner and this is Dial P for Procurement, where I take a critical but unbiased look at current events, ongoing trends, and the complex dynamics at play in global supply chains. We take on tough stories here, ones that don't have simple solutions. My goal is not to give you an answer, but to make you think. Each episode covers a different complex issue and prioritizes reality over simplicity. With so much complexity in the world today, I'm glad you're here.
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Do you ever see a news topic go by and think, oh, yeah, whatever happened to that? I had that experience just recently with regard to cold chain logistics. I read a news story in the Wall Street Journal about Ozempic. This is a pharmaceutical injection that's primary purpose is treatment of type 2 diabetes, but it's also becoming very popular for weight loss under the brand name Wegovy. And it is just one of many prescriptions that has to be transported via the cold chain. Now, I don't usually do this, but for the sake of this episode, let me take you back to to the height of the pandemic. Trust me, I don't like doing this more than anybody else, maybe even less. But I remember very clearly standing in my kitchen watching the TV as the very first Covid vaccines shipped out in FedEx boxes. A brand is a brand. But in that moment, we were all just supply chain and we were focused on the critical business of saving lives. I'm a procurement geek, but I'm also a supply chain nerd. And that was a rock star moment. It's something we can all be proud of. Cold chain was one of the phrases that entered the general lexicon. In that moment, the COVID vaccine had to be shipped cold. Really, really cold. The world was already primed with their newfound knowledge about supply chains. And so they were positioned to discover and understand cold chain logistics. They weren't just ready for it, they were ready to be dazzled by it. It was like another bit of supply chain magic. And then everyone moved on. So in this week's episode of Dial P for Procurement, I'm going to reintroduce you to the modern miracle that is cold chain logistics. We'll consider the different applications and innovations that allow it to enrich our lives, whether we are watching it with bated breath or taking it for granted. And then we'll think about all of this from a professional supply chain perspective. What are some of the next level things we need to consider? Now? Let's start with the basics. Don't worry, we're not going all the way back to the beginning. In fact, one of the articles I read in preparation for this episode talked about the beginning of the movie Frozen, with the men removing blocks of ice from a lake and carting them off for sale. We're not going that far back, although to me it's a very funny thought. Olaf will not be making an appearance in this week's episode. The term cold chain dates back to 1908 and it's originally connected to the UK meat supply chain. So this isn't just cold storage. This is an actual cold supply chain. In 1908, the St Catherine docks in London could store 59 fish animal carcasses. Just three years later, cold storage capacity in the city had exploded, reaching 2.84 million carcass capacity. From storage, it expanded out into transportation not just via truck and train, but truck to train and train to truck. That's where cold storage becomes cold chain. But it all still depended on ice. For a slightly more modern or mechanical look at refrigeration, we have to jump about 30 years to 1938 when the company Thermo King hits the scene. It was founded by Frederick McKinley Jones and Joe Numerous. Now each of them has an interesting background. Joe Numero made his money by founding and then selling his media sound business to RCA. Frederick McKinley Jones was nicknamed the King of Cool by Heavy Duty trucking editor Tom Berg. Jones is considered one of the most notable black inventors of the 20th century, and together they designed a portable air cooling unit for trucks carrying perishable food and they patented it in 1940. I mentioned that the cold chain was originally used for transporting meat, which probably sets the expectation for what cold means today. There is more than one temperature range that applies based on exactly what is being shipped, and your cold chain requirements will change significantly based on that. The common range is 36 to 46 degrees Fahrenheit or 2 to 8 degrees Celsius. That's standard cold chain or refrigerated chain. The frozen chain requires -20 degrees Celsius and then ultra low or ultra cold supply chain requires negative 70 degrees Celsius. This is where the COVID vaccine was. All of it is considered part of the cold chain, just with different qualifications, which if you're a procurement professional, listening to this means, you know that's associated with added cost. There are only 25 to 30 countries in the world that have the infrastructure required for this ultra cold cold chain. Now this infrastructure means vehicles, but also airports and distribution centers because it requires that the stopping points on the journey and the traveler transportation in between. Those stopping points are also maintained at the same low temperature. This was certainly an issue when distributing the COVID vaccine globally was a top line priority. And so investment is part of this. Global spending on pharmaceutical cold chain is expected to grow nearly 24% between 2020 and 2024 to reach about $21.3 billion a year, according to the Biopharma Cold Chain Sourcebook. And today there are multiple ways to keep shipments cold. There's mechanical refrigeration or, or reefer trucks, short for refrigeration. There are also thermal containers that have dry ice in them, sort of a little bit like the legacy of Christoph from Frozen. In fact, sometimes the old ways are best to be truly seamless. Insulated containers have to have dry ice in them as opposed to using mechanical refrigeration around the product. Because as it moves in and out of trucks and shipping containers and warehouses, there's always the possibility that there's going to be a temperature fluctuation. Shippers calculate the dry ice required for a set number of days and they pack it in advance before it leaves. The container is then not opened until it reaches its destination, a place that is presumably prepared to meet its requirements. The cold chain also applies to a lot more than pharmaceuticals. And sure, we've talked about meat transportation, of course frozen foods and dairy. Perishable produce would travel this way, and that's wholesale. But we also need to think about the rise of e commerce grocery sales. They've exploded since the pandemic. That requires smaller units that have similar capabilities. Flowers also need to travel this way, as do probiotics. The cold chain absolutely predates Covid. But the needs of COVID and the attention given to Covid kicked development, monitoring and innovation into overdrive. COVID 19 vaccinations required Ultra cold refrigeration, which also required special packaging. In fact, dry ice was the only way to keep Pfizer's COVID vaccine cold enough as it had to maintain a temperature of -94 degrees Fahrenheit, 70 degrees negative Celsius. That is ultra cold. Now, by comparison, Moderna's COVID vaccine was expected to stay stable at 2 to 8 degrees Celsius, that common range. And it would be okay at that range for up to 30 days. In addition, because it didn't have to be stored quite so ultra cold, it could be outside of storage for longer. Something that really paid off at injection facilities and doctor's offices. Now, at this point, we're all used to technological Innovation. And some of that in this case has to do with the mechanics, the packaging, and of course, the sustainability concerns of the cold chain. But like everything else, it also has a lot to do with data and digital tracking. We need to be concerned about the monitoring and reporting associated with maintaining a cold chain. It's less glamorous, but it's no less critical. If you're the person waiting for that prescription, think for just a moment about the cost of a ruined shipment. That takes many forms. Sure, money is the obvious one, but there's also lost time and the sense of delays around treatment, which leads us to potentially loss of life or loss of quality of life, and of course, brand damage. For these very high profile companies, warehouses and logistics providers not only have to meet condition expectations, they also have to prove that they have met condition expectations every single step of the way. For this reason, many of them are investing in centralized monitoring and using things like integrated telematics. Think about them as rugged GPS tracking devices that can also survive in these ultra cold conditions. This provides near real time monitoring centrally so that immediate communication can happen with the driver if conditions start to move outside of the tolerated range. Now, because we're talking about warehouses and trucks and shipping containers, we also need to think about doors. As doors open and close at different stops, that's necessarily going to have an effect on the conditions inside that container. Assuming you're not pulling into an ultra cold warehouse in order to deliver it, any equipment, movement or status change could affect the product, which includes doors opening and closing, weather events outside the truck, warehouse or shipping container, even traffic delays. In some cases, companies are investing in geofencing so that a product can notify someone in a warehouse when a trailer approaches the loading dock. That helps minimize transfer time, but it also helps keep the truck on schedule if they are transporting more than one customer's cold goods. Some of the other analytical considerations here include the sustainability implications of a refrigerated fleet. There are a lot of chemicals involved in that, and it factors into the decision of what kind of packaging is used for the product, how is it kept cold, and of course, fleet optimization. You have to be able to put the right piece of equipment in the right place for that specific job on time, with very little tolerance for anything being late. Now, part of why there is such little tolerance is because the cold chain is expensive and important products are being moved that way. But it's also because of regulations. The Food and Drug Administration, or FDA, oversees the Food Safety Modernization act of 2011. This requires regular auditing of equipment for cleanliness and maintenance. And it mandates both employee training and record keeping. It's not entirely unlike the training that restaurant employees receive about cross contamination and general food safety. It's just on a whole other level. And there's another body beyond the FDA that gets involved in cold chain oversight as well, the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use. Fortunately, they let their friends just call them ich. So we're going to do that. We'll stick with the three letter acronym tradition. They point out that the cold chain is not just about cold, it's also about stable. If you think about some of those temperature ranges from refrigerated to frozen to ultra cold, there were still some pretty broad ranges. And individual products or product sets will have much narrower ranges that they need to be maintained at during transit. With this record keeping, the burden of responsibility falls on manufacturers and distributors, not third party service providers that are being used for drug distribution, relied upon for record keeping or responsible for meeting these requirements. So you can be sure that it is specified in excruciating detail in more than a few third party logistics provider contracts exactly what has to be done to meet service level expectations. Warehousing providers must also follow the first expired, first out principle. So when you think about outsourcing your inventory management, there is a lot to it when you're functioning in the cold chain and storage areas have to be large enough to hold the product without crowding. Think about how your own refrigerator might struggle if you're having a large party or cookout. And there's more. The average amount of stuff shoved in there. There has to be enough room for airflow between the product to keep that temperature cold and stable. All documentation is required to include stability data, climatic zone and geographic data for transport and warehousing, and storage and shipping durations at all points along the cold chain. This depends heavily on some of the sensors and remote monitoring capabilities we've already talked about, as well as long term storage of those records. And of course, with risks this high, contingency planning is essential. Simple things like power outages or outside of normal temperature range, weather conditions can be hugely damaging to this kind of product. We talk about supply chain risk all the time, but not all risk is the same. And the implications and the severity skyrocket when you start talking about especially the ultra cold cold supply chain. There are so many what ifs. Can the driver re ice pharmaceutical cargo if there's some sort of a delay? What's the plan if mechanized refrigeration Fails. One of the other risks that is front and center, is the question of network capacity. There need to be enough trucks and shipping containers and warehouse space in the right locations for each level of cold chain. There's certainly been a rise in investment in warehousing. In June of 2022, CBRE reported that there was approximately 225 million square feet of cold storage real estate in the US in the second half of 2022. Investment in increasing that space took off, adding an additional 7.5%. And we've talked about the importance of packaging, but also sustainability, which is a huge topic in supply chain. And so finding thermal packaging that is also eco friendly becomes important. This is made of all different kinds of materials, some better for different kinds of conditions and different kinds of product. Some of it's reusable and some of it's not. As you might expect, synthetic foam is used a lot. But many companies are experimenting with the ability of natural fibers like cotton to keep product cold. And in some cases, multiple options are combined to meet the exact requirements of the product and the locations it will travel to and through. Now, when it comes to risk, here's where my mind went. We've talked about remote sensors and tracking. Well, who has access to that data? Do the temperature sensors stay with the truck or are they attached to the product? Maybe they're in both places. Who is ensuring the temperatures are met? Is it the shipper or the carrier? We know that according to the FDA and ich, that the pharmaceutical manufacturer is ultimately responsible for the condition of the product from a regulatory standpoint. Even though in most cases they're probably contracting out their logistics, that creates a situation where your supplier, in this case a 3 PL, is the one that's ultimately determining what, Whether your company is FDA compliant. I'd call that a strategic supplier relationship. Despite the fact that we don't hear about it a lot anymore, the cold chain truly is a modern marvel. But with so much information and so many details, this can quickly become abstract. So let's go back to where we started, Ozempic. Their story hit the Wall Street Journal and brought the cold chain back into the news. And it did so because of the complicated and costly logistics associated with refrigerating and moving these prescriptions. According to the Wall Street Journal, ozempic costs about $1,000 a month. And cold chain logistics are eating into manufacturer Novo Nordisk's profit margins. Maybe they're increasing profits for distributors, but we know it's just as expensive to provide cold chain services as it is to subscribe to them, and the distributors and warehousers have to take on a lot of risk in order to make that money. AmerisourceBergen makes a comparable diabetes drug that also has to travel via the cold chain. James Cleary, their cfo, has stated that the drugs are barely profitable from an operating income standpoint. Their product must be stored between 36 and 46 degrees Fahrenheit to prevent the medication from undergoing a chemical change and losing its effectiveness. Now that puts it in the common cold chain range, which should help. But given the rise in demand, capacity is becoming an issue. And with capacity shortages we see cost increases. Even with their comparably large profit margins, pharmaceutical companies have their eyes on the bottom line. Now, some of that cost associated with the cold chain is pharmacy industry specific. These trucks typically carry a higher level of insurance and may be outfitted specially to keep the product secure, making sure that they aren't stolen and resold on the black market. There's also a labor impact here. Some trucking companies require two drivers move pharmaceutical loads to make sure one person is with the cargo, which effectively doubles the labor cost. You can almost think of it as a cold armored car. The spot rate for refrigerated trucks was $2.44amile in July compared to $2.07amile for dry vans. And that's according to the most recent data from online freight marketplace DAT solutions. That's an 18% difference. Pretty significant. The Motley fool reports that Novo Nordisk is already working on ozempic 2.0. Can you imagine how much more profitable and accessible it would be if it didn't require the cold chain to Distribute? Beginning in 2020, everyone and their mother was riveted learning about what the supply chain can do, and that was only increased with the coverage of cold chain capabilities, especially in the context of moving the COVID vaccine. But like everything else, the cold chain has slipped from the headlines. Hopefully that does not mean we're taking it for granted. The race is on to meet demand for cold fleet equipment and warehouse space, to reduce the risk taken on at transition points, and to ensure constant conditions through a seamless chain of custody. Doing that is expensive, which means that whether you work in procurement or supply chain, this topic may just cross your desk. Be informed and be ready to consider and document all of the contractual obligations. But don't forget to stop and be impressed as well. If this episode of Dial P for.
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Procurement made you think, please spread the word. You can also support the show by giving it a thumbs up a star rating or a review wherever you listen to your podcasts. Dial P for Procurement is part of the Art of Procurement family of brands, which also includes Buyers, Meeting Point, and My Purchasing Center. Our collective resources include podcasts like this, videos, blog posts, white papers, and events to ensure you never miss out on what's new. Please subscribe to our newsletter@artofprocurement.com subscribe I'm grateful for your interest in the work.
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We are doing here at Dialp for.
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Procurement, and I look forward to having you join me again next week.