Talk about a niche market. Advanced Biohealing Inc. makes Dermagraft, a living skin substitute that is grown from newborn foreskins and used in the treatment of diabetic foot ulcers. The highly specialized product can help stricken patients to avoid leg or foot amputations. Yet this extremely delicate tissue calls for the utmost care in storage, handling and transportation.
Start with the making of the substance. It takes months to produce, has a shelf life of no more than six months, and must be stored at temperatures of minus 75 degrees Celsius, says Kathy McGee, senior vice president of operations with Advanced Biohealing. During transfer from freezer to carrying container, it can only be exposed to ambient temperatures for a matter of minutes or even seconds. Handlers stand by with stopwatches to ensure that this requirement is met.
Dermagraft was first developed in the early 2000s by a company called Advanced Tissue Sciences, which never made a profit and went bankrupt in 2002. The product, which nevertheless had huge potential in treating diabetes patients, was revived when rights to it were acquired by the venture capital firm Canaan Partners and a handful of other investors.
Canaan-backed Advanced Biohealing had been in existence since 2004, but didn't acquire the assets of Dermagraft until 2006, McGee says. In 2011, the firm went through yet another transition when it was bought by Shire plc, an Irish company that sells biopharmaceuticals for the treatment of a range of diseases.
The transaction didn't alter the company's basic operations. Advanced Biohealing continues to make Dermagraft at just one location in La Jolla, Calif., just north of San Diego. From there, the company distributes throughout the U.S. The primary carrier is UPS, which picks up from the plant on a daily basis.
Dermagraft is too perishable to be stored in large quantities at multiple locations. Yet Advanced Biohealing was concerned that a single distribution point, utilizing just one airport, might not be sufficient to meet the needs of physicians nationwide. What if the company encountered a logistical glitch at that location? Any delay in the transportation of tissue that is manufactured for a tightly scheduled procedure would be unthinkable. What's more, Advanced Biohealing was facing space constraints in its single-source supply chain.
A Second Shipping Point
The solution lay in creating one additional location for storage and shipping in the eastern part of the country. McGee says Advanced Biohealing had a goal of keeping half of its finished goods inventory at the new site. The only question was who was a reliable enough partner to run the facility.
The company put the project out to bid, narrowing the field to four carriers that also had distribution capabilities. The winner was UPS, which had a long familiarity with the requirements of Dermagraft, having supported two other companies that previously had ownership of the product. According to McGee, Advanced Biohealing had been served by the same dedicated UPS driver for years. "He's very familiar with our product," she says. "Our local driver customer service is top-notch."
Advanced Biohealing was further impressed when it visited UPS distribution facilities, which had the appropriate quality measures in place and were registered with the U.S. Food & Drug Administration. For its second storage site, the company decided on UPS's hub in Louisville, Ky. There was only one thing missing: the actual freezers that would hold the product. They would have be purchased specifically for that purpose.
Advanced Biohealing made available its validation team to help with installation and initial monitoring of the new freezers. In addition, says McGee, its logistics group spent a good deal of time training employees on site. For its part, UPS put into place dedicated standard operating procedures, backed by an extensive training and evaluation program. Experts from UPS's healthcare logistics team were on hand, both at the contract bid stage and when it came time to purchase the equipment.
Essentially, UPS does the same thing in Louisville that Advanced Biohealing does for itself in La Jolla, says Jeff Walsingham, marketing manager with UPS Healthcare Logistics. It takes the client's orders, provides visibility to inventory on hand and ships product on demand.
With 75 percent of its orders shipped on a just-in-time basis, Advanced Biohealing considers it essential to have a fix on items in transit. McGee says UPS can track a package at any point in the process. Typically a shipment must be delivered within a day of the order's placement. "It's absolutely critical that the package arrive at a physician's office or wound care center on the day the patient is scheduled," she says. Advanced Biohealing's customer service team checks each morning to see whether any exception reports have been issued.
The Model Proves Itself
It's difficult to assess the value of protecting against disasters that never happen, so good risk management often doesn't get the attention it deserves. Advanced Biohealing, however, got to see its diversification strategy validated in a very real way. On Sept. 9, 2011, San Diego and other parts of Southern California were hit by a massive power outage, which resulted in closure of the San Diego International Airport.
Fortunately, the UPS distribution site in Louisville was up and running. Advanced Biohealing was able to take 400 pieces of product that were ready to go in San Diego, and reroute them out of Kentucky. UPS's team, who are on call 24 hours a day, had already gone home for the night, but immediately returned to work to process the orders for shipment that evening. The company was able to fill its West Coast orders by trucking them to another airport in California. Says McGee: "A lot of our customers didn't even realize that all of Southern California was blacked out for 11 hours."
Considering the demanding nature of its product, Advanced Biohealing is extremely conservative about adding distribution nodes. The success of the UPS project, however, has proved that super-sensitive Dermagraft doesn't have to be shipped directly from its sole manufacturing location in order to meet demands for product integrity.
Now, says McGee, the company is plotting an international expansion of its network. A likely target is Europe, for which the U.S. West Coast is not a feasible shipping point. McGee says a new location, close to a major international airport on the East Coast, would be required. "We're still reviewing it," she adds.
Walsingham says UPS has been talking to Advanced Biohealing about participating in the expansion. "We're always looking at risk mitigation, and trying to reduce cost," he says. "It's a great partnership - very collaborative."
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