As pharma companies continue to search for new areas of business to outsource, third party logistics (3PL) is an area tipped for dramatic growth over the next four years, particularly in Europe where the practice is still in its infancy, according to recent market research.

Only 20 per cent of logistics is outsourced by UK drug companies, in stark comparison to the US, where it is common practice, with many small-or medium firms outsourcing 100 per cent logistics, www.Outsourcing-Pharma.com reported.

This gap is expected to narrow, as the research indicates that total logistics spend in the European pharma industry will increase 27 per cent by 2010 to reach €6.6 bn, with outsourcing spend increasing by around 33 per cent to €1.6 bn.

Dry pipelines are pushing drug companies to adopt cost cutting strategies. In addition, consolidation in the industry has resulted in a large variety of products, as well as disjointed distribution and storage facilities.

To increase profitability, European manufacturers are increasing their focus on core activities and instead outsourcing logistics to 3PLs with the expertise to create a flexible and cost efficient distribution infrastructure.

Another major driver towards 3PL growth in Europe is the snowballing generics market. Because companies that manufacture generics only make low margins on these products, outsourcing is providing an effective route of minimising overhead costs.

Furthermore the emergence of drug tracking technologies such as RFID technology will draw in further business from companies who were previously skeptical about supply chain visibility.

In the wake of the changing business environment, the well-established European 3PLs are now beginning to geographically expand in order to capture new market share.

Several 3PLs currently hold a strong position in the European market, with some, such as Exel (which has just been bought by Deutsche Post) and BAX Global, having a separate business unit dedicated to healthcare.

The companies that can offer a global distribution network will be particularly successful, as drug companies are moving much of their manufacturing, R&D and clinical trials to low cost countries, particularly India and China, due to the deregulation of the pharmaceutical market and the strengthening of intellectual property agreements.

3PLs provide the pharma industry with cost effective distribution of products and total logistics.

Specific services include product transport; expiration date control; information systems such as RFID technology; temperature and humidity controlled storage; recall and quarantine service; product launch support; updating literature, labelling and samples management.

Established 3PLs have gained the trust of drug companies, particularly in the US, through adherence to strict industry regulatory requirements (e.g. Good Distribution Practice), governing 3PLs in the handling of ethical and controlled substances.