UPS will Benefit from Healthcare Compliant FSLs and Growth in the U.S. Medical Device Industry

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UPS: United Parcel Service logo
UPS
United Parcel Service

United Parcel Service (NYSE:UPS) recently announced that it has enhanced it Field Stocking Location (FSL) network to support the growing demands of the medical device industry. [1] Given the expected growth in the U.S. medical device industry and the increased demand of manufacturers for timely delivery in order to provide better customer service, we believe that the move will help drive UPS’ healthcare logistics business which is a part of its Supply Chain logistics division.

We have a price estimate of $103 for UPS, approximately 2% lower than the current market price.

Features of UPS’ FSL network will attract customers

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UPS’ FSLs are strategically located facilities that provide time-sensitive logistics support and efficient warehousing to companies for whom quick response times to customers are of utmost importance, such as technology firms, e-retailers and medical device manufacturers.

Medical device manufacturers need to cater to requests from hospitals and retail customers in short time spans, making it important for them to have conveniently located warehouses. However, setting up warehouses all over the country can prove to be expensive for these manufacturers and will require diverting some of their focus towards managing the logistics behind product delivery.

This is where UPS’ FSLs step in to help medical device manufacturers, by taking up the responsibility to store and deliver products to customers. In the U.S., UPS has set up 36 healthcare-compliant FSL sites which can provide access to 80% of U.S. hospital beds within four hours. [1] The facilities are also capable of handling temperature-sensitive products. The FSLs will enable manufacturers to deliver products quickly, manage inventory costs, maintain regulatory compliance and will provide end-to-end visibility across the supply chain. Such features are likely to attract customers towards UPS’ service and will help boost UPS’ revenue from supply chain operations.

UPS’ healthcare related volume will benefit from growth in the U.S. medical device industry

The U.S. medical device market is expected to grow 6.4% annually and will reach $134 billion by 2016. [2] High healthcare related spending, large aging population and the presence of seven of the world’s top ten medical device companies in the U.S. will help drive this growth. Additionally, healthcare regulations such as the Patient Protection and Affordable Care Act (PPACA) will encourage sales of medical devices. Growth in the medical device industry will ensure continued growth in UPS’ healthcare related volumes.

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Notes:
  1. UPS Enhances U.S. Field Stocking Location (FSL) Network to Support Medical Device Industry, July 14 2014, www.ups.com [] []
  2. American Medtech Market to Grow 6.4% Annually Through 2017 (Infographic), July 17 2013, www.mddionline.com []