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How Do Allocations Work for the Pharma Supply Chain?

By Heather Zenk, RPh, PharmD

Three facts about how distributors are managing in-demand inventory.
Distribution Drug picking area with female employee

Part of the responsibility of wholesale distributors like AmerisourceBergen is to ensure the stability of the supply chain. We are constantly monitoring for spikes in demand or dips in availability for products and will put products on “allocation” to get as much product as possible to as many providers as possible across the country.

Simply put, even under normal circumstances, allocation is a supply chain stability tool. When products are “allocated” it means that the amount that a single customer can purchase of a product is limited. Under normal circumstances, we use something called “fair share” allocation to ensure there is enough supply to go around. This type of allocation is put on products that are in short supply (or have the potential to be in short supply) while being in high demand in order to ensure the stability of the supply chain.

Right now, we are seeing many products currently being used in treatment for COVID-19 cases—from sedatives, inhalers, antivirals and antipyretics to over-the-counter cough/cold medication and isopropyl alcohol—in short supply due to much higher than normal demand across the country, and this is impacting all of the sectors of the supply chain at the same time.

In many cases, these instances of short supply don’t meet the traditional FDA and manufacturer definition of a “shortage” because the same amount of product is in the supply chain as was in the supply chain several months ago. However, there is indeed a shortage of supply—or a “shortage” as defined by distributors and sites of care—because providers across the country have needs that go far beyond their historical needs. It is truly an unprecedented situation—with an unprecedented number of patients occupying ICU beds, additional ICU beds being added, and new “pop-up” hospitals being erected for patient care—that would have been impossible for anyone to prepare for.

As a result, distributors like AmerisourceBergen are taking steps to both help manufacturers understand the scope of the increased demand and manage the inventory available through allocations. We are doing this to ensure COVID-19 “hot spots” and providers across the country can respond and prepare for current or anticipated increases in COVID-19 patients, and to ensure they can address ongoing non-COVID-19-related patient care. The unfortunate truth is that right now, overall demand for many of these products exceeds the available supply.

So, what exactly is allocation, and how does it really work? Here are the three allocation facts you need to know in light of the COVID-19 pandemic:

1. Right now, every acute care provider wants to increase their inventory.

Under normal circumstances, allocations can happen for a number of reasons. In the pharmaceutical supply chain, items are placed on allocation in ordering systems for reasons that can include: drug shortages; FDA and regulatory issues; contractual issues; or the manufacturer allocating to the distributor or experiencing a long-term backorder. Right now, COVID-19 is causing supply issues—overall demand exceeding available supply—in the marketplace.

Providers across the healthcare continuum (especially in the acute care setting) are increasing inventory in response to, or anticipation of, a significant increase in patients being admitted to the hospital. These include new uses or need for existing products like hydroxychloroquine, azithromycin, albuterol inhalers and injectable narcotics. At the same time, patients who had been using some of these medications are maintaining or preparing for quarantine by requesting longer-term or early prescription refills. AmerisourceBergen has made it a priority to keep in constant communication with manufacturers to buy in-demand inventory as quickly as possible, meet increased demand from providers and ensure supply chain stability for future patient needs.

2. Allocation is algorithm-based, but also responsive.

The best allocation methods take a number of factors into consideration for the provision of certain products. In addition to taking a providers’ previous purchase history into consideration, AmerisourceBergen’s allocation program is now recognizing factors like existing and emerging hot zones for a prevalence of COVID-19 patients and the number of ICU beds at a facility in that hot zone, where product needs are truly emergent and may not be adequately deduced based on historical demand. The system is also responsive—it sees increased demand from our customers and accounts for that demand by more heavily weighting the most recent weeks’ demand than demand from one month prior. Overall, the faster that high-demand products can quickly be produced and enter the supply chain, the more success providers will have in preparing to treat an unprecedented influx of patients.

All of AmerisourceBergen customers have access to any pharmaceutical that we have in our catalog or portfolio, as long as manufacturers allow that access. In normal times of business, the standard allocation process allows customers to buy, for example, up to 125% of their historical purchase amount of a certain product. (As a note, the allocation program is entirely separate from AmerisourceBergen’s controlled substance order monitoring program.) When more unique circumstances like COVID-19 occur, we allocate an equitable portion of all available product based on the percentage of inventory we’re receiving against purchases from manufacturers and might increase allocation percentages for customers in hot zones. AmerisourceBergen does not “hold” product in our distribution center—we make it available to providers as soon as we have it in stock.

3. Allocation leaves sites of care better equipped to combat COVID-19.

Allocation programs place safeguards on products in high demand to create stability of supply, getting as much product as possible to as many providers as possible, as quickly as possible. Allocation also creates safeguards so that well-intentioned providers do not overstock product due to fear of market shortages. Concentrating inventory at the distributor level rather than at any one site of care keeps the supply chain nimble enough to support patients anywhere.

Allocation is a way to ensure every healthcare provider across the continuum of care can receive as much of needed medications and supplies as possible. It isn’t a way to control access.

During times like the spread of COVID-19, a distributor’s role in supporting and protecting the pharmaceutical supply chain only becomes more crucial, and we are prepared to navigate these unique challenges in partnership with both manufacturers and healthcare providers. We understand that the simple truth is that, because of COVID-19, pharmaceutical demand is exceeding supply for critical categories of pharmaceuticals.

Learn More

See the full details of AmerisourceBergen’s COVID-19 response.

About The Author

Heather Zenk, RPh, PharmD
President, Distribution Services and Supply Chain Operations
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