More health systems are building their own warehouses and distribution operations, betting that control over inventory is worth the capital cost.
Two supplier disruptions this year showed what’s at stake. In June, a fire destroyed Medline’s 1 million-square-foot distribution center in Tracy, Calif. The Tracy facility mainly served Northern California, and after the fire Medline activated a command center and a network contingency plan, shifting orders to secondary and tertiary distribution centers. The company has since leased more than 1.6 million square feet of distribution center space in Northern California to replace it.
In August, a cyberattack disrupted supply from Boston Scientific. The devicemaker said the attack triggered a global network outage that cut off its ability to process and ship customer orders. Hospitals could still place orders electronically, but those orders sat in a queue for fulfillment once systems were restored, with no timeline for when that would happen.
Salt Lake City-based Intermountain Health is extending its model into a new state. The system launched a centralized service center in Billings, Mont., last year, the first in the state. Gordon Slade, senior system director of distribution services, said the hub grew out of Intermountain’s 2022 merger with SCL Health.
“The traditional big three medical surgical supply distributors do not have large distribution centers in Montana,” he said. The center handles medical-surgical supplies, limited pharmaceutical distribution and linen services.
At Clearwater, Fla.-based BayCare, self-distribution is already scaling. The system’s move into a 250,000-square-foot consolidated service center drove a 103% increase in self-distribution sales to $442 million in 2025 while maintaining a 99.3% fill rate.
St. Louis-based BJC HealthCare has published some of the clearest performance data on the model. After opening a 416,000-square-foot center serving 14 East Region hospitals, BJC improved order fulfillment rates from 90% to more than 99% and increased on-time, in-full rates from 27% to 75%. Order processing costs dropped by 80%, and the system reduced inventory on hand by 25 days.
Logistics companies are moving to meet the demand. In September, DHL Supply Chain launched a model designed to centralize inventory and medical support activities for U.S. health systems. It uses consolidated service centers to store, prepare, manage and distribute drugs, supplies and equipment, with dedicated transportation connecting the centers to hospitals and outpatient sites.
The common thread is resilience as much as savings. These centers take storage out of clinical spaces, give systems more visibility into inventory and reduce reliance on distributors whose networks may not reach every market a system serves.
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