A Brief Primer on CVS’s Distribution Network
The largest drug store chain + the largest pharmacy benefits manager + the third largest health insurance company + ...
CVS Health is a many-headed Hydra. Most people are familiar with its CVS Pharmacies, which have mostly grown through acquisitions: Clinton Drug and Discount (1972), Mack Drug (1977), Heartland Drug (1988), Peoples Drug (1990), Revco Drug (1997), Arbor Drugs (1998), Eckerd Drug (2004), Osco Drug (2006), Sav-On Drugs (2006), MinuteClinic (2006), Longs Drugs (2008), Navarro Discount Pharmacy (2014), and Target Pharmacy (2015).
In 2007, CVS merged with Caremark, Rx, becoming CVS Caremark. Caremark is now the largest pharmacy benefits manager in the country with 21% market share. In 2017, CVS also bought the health insurance giant Aetna, and unsurprisingly Caremark is Aetna’s pharmacy benefits manager.
There are two acquisitions that are particularly relevant to this primer, as they are key components of CVS’s distribution network: in 2000, they acquired Stadtlander Pharmacy, making CVS the biggest specialty pharmacy in the country, which it remains today. In 2015, they acquired Omnicare, which specializes in pharmacy services to long-term care facilities like nursing homes. I’ll explain the logistical importance of these acquisitions below.
As with all of our brief primers, this one comes with a map of CVS’s distribution network. If you have any updates to it, we’re always appreciative of an email at ontheseams.newsletter@gmail.com.
Distribution Centers
CVS will often say that they operate 19 Distribution Centers, but that seems to be a simplification for the press, as the information they publish on their supplier website indicates that it’s more like 19 clusters of distributional facilities. Here’s how their distribution facilities are spread out around Indianapolis, and I think in their official count this would be one DC with a few satellite branches.
The main differentiation between DCs is between store supply/bulk/over-the-counter medication facilities, and prescription medication facilities (of which there are only 12), though these are often co-located. As a whole, the DCs employ about 8,000 people and each one has a set turf of stores they supply. For 9,800 locations (which include Target and MinuteClinic sites), that’s about 500 stores per DC, though their supplier site more accurately represents the regional breakdown.
The DC process flow is as your would imagine it to be:
Up until this year, DCs were mostly pretty low-tech operations, but recently CVS has revamped its Lumberton, NJ facility with automated retrieval systems from the Norwegian company AutoStore, and automated sortation from Orlando-based Tompkins Robotics. Here’s AutoStore at work:
And here’s the Tompkins Robotics system, which serves essentially the same function (and looks almost identical to) the Amazon Pegasus:
The main warehouse management software is a customized version of Infor’s WM2000. CVS also uses a yard management system developed by The Descartes Systems Group and a forecasting and replenishment tool from JDA Software Inc.
Specialty Fulfillment Centers
CVS Specialty has 14 Specialty Pharmacies around the country which both supply stores with specialty medications and act as Fulfillment Centers for home/doctor’s office deliveries. Specialty medications are “high-cost, complex therapies approved to treat a growing array of chronic conditions, rare diseases, and life-threatening illnesses.” CVS does operate its own fleet of tractor-trailers, and it also contracts with 3PLs, but those seem to be for use by the Distribution Centers. The Specialty Fulfillment Centers appear to use UPS and USPS for deliveries.
Omnicare Pharmacy Delivery Stations
Omnicare delivers medications in batches to long-term care facilities, as described here:
They hire their own full- and part-time delivery drivers to do so, who work from one of the 62 Omnicare (and Omnicare subsidiary) facilities listed on the map. For direct-from-store deliveries, they’ve partnered with Shipt, DoorDash, and GrubHub.
Mail Order Facilities
Finally, CVS also has four of its own dedicated Mail Order Facilities, which function like Fulfillment Centers. I have only been able to locate two for certain: one in Mount Prospect, IL, and the other in Wilkes-Barre, PA. It’s possible that the other two are co-located with Distribution Centers, but there are also a bunch of warehousing facilities that are definitely associated with CVS of an unknown type.
Their facility in Mount Prospect can supposedly fill 10,000 prescriptions an hour, stocks 7,000 kinds of medications and medical supplies, and employs about 500 people. Their order-fulfillment system through their website is provided by ASAP/BMH Solutions.