Corporation Warehousing Solutions

Major Categories of Wholesalers

Wholesalers can be classified into several categories based on their size, breadth of coverage and activity, and principal function. The following sections profile the "Big Five" wholesalers, regional wholesalers, smaller (i.e., sub-regional and/or specialty) wholesalers, and secondary wholesalers.
1.3.1 The Big Five Wholesalers
The prescription drug wholesaling industry in the United States is highly concentrated, with 90 percent of sales made by five major full-line companies, referred to as the "Big Five." This group consists of McKesson HBOC, Inc., Bergen Brunswig Drug Company, Cardinal Health, Inc., AmeriSource Corporation, and Bindley Western Drug Company (see Table 1-3) (NWDA, 1999 and U.S. District Court for the District of Columbia, 1998). These companies generate from $7.6 billion to $21.5 billion per year in revenue, and represent the principal pipeline of drug distribution from manufacturers to dispensers (NWDA, 1999). The Big Five sell to regional distributors but also supply some health care institutions and independent drug stores (i.e., those with no more than three pharmacies). The Big Five distribute a full-line of drug products.
Traditionally, these wholesalers purchased the prescription drugs in large quantities from drug manufacturers, took ownership of the drugs in their own warehouses, and then resold them directly to the retail chains or hospitals (i.e., large dispensers) in desired allotments. This traditional service is referred to as "direct store delivery." Increasingly, however, large purchasers (especially retail chains) prefer self-warehousing, where the retailer buys direct from the manufacturer, stores the drugs in one or more of its own warehouses, and then delivers them to its retail stores and hospitals as needed. Accordingly, the Big Five and various regional wholesalers now also offer "dock-to-dock" delivery and "drop shipment" charging, which are also known as "brokerage" services in the wholesale industry (U.S. District Court for the District of Columbia, 1998). In dock-to-dock delivery, the wholesaler obtains drugs in large quantities from the manufacturer for direct delivery to retail chain or hospital warehouses and does not bring the drugs into its own inventory. In drop shipments, the manufacturer ships the product directly to the customer, but with the order and payment submitted through the wholesaler. In these brokerage operations, the wholesaler does not take ownership of the drugs in its own warehouse at any time. In 1998, these non-stock sales of the Big Five and regional wholesalers amounted to 17 percent ($12.7 billion) of total sales by wholesalers ($73.8 billion) (NWDA, 1999).

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