On one side, general anesthetics and narcotic drugs are distributed illegally without control, while on the other, a shortage crisis spreads because children's fever reducers are out of stock. They may look like separate incidents, but pharmaceutical companies and experts say they are the result of "information opacity" in Korea's drug supply chain. Even if production increases, medicines vanish in the field—an irony rooted in a distorted distribution structure where more than 3,500 companies are scattered and tie up inventory. We conducted in-depth reporting with current and former industry insiders on the structural gaps and fixes in Korea's festering drug distribution system. [Editor's note]
"When you order from Coupang, you can track the movement in real time from the moment it leaves the fulfillment center to arrival. But for medicines directly tied to public health, there's no proper tracking of where and what went wrong at any intermediate stage after shipment."
So lamented an employee at a pharmaceutical company. Though both are "logistics," every step of e-commerce delivery is transparently tracked, while drug distribution remains a black box. Because of this, drugmakers have no way to check the middle leg when pharmacies file complaints such as "the medicine arrived broken" or "the ordered medicine was lost." Not a few times, tablets that require strict temperature and humidity control in summer and winter are left unattended for hours at the pharmacy door.
Drugs are produced in sufficient quantities but disappear in the field, while illegal transactions and stockout crises recur. Industry and experts point to the structural gap that the entire drug distribution process is not consolidated by data.
Some pharmaceutical companies are pushing digital platform adoption and logistics innovation, but wholesalers are pushing back, calling it a threat to their livelihoods. The core of the debate over solutions ultimately converges on "who controls the distribution data."
◇ Hanmi's "platform experiment," Daewoong's "hub wholesalers"… drugmakers' attempts at innovation
The first spark of conflict between drug wholesalers and pharmaceutical firms in Korea was lit with the emergence of online, medicine-specific ordering platforms.
Hanmi Science established its subsidiary Onlinepharm in the mid-2010s and built the "HMP Mall," a drug ordering platform. It sought to integrate pharmacy ordering, inventory checks, and settlement in one place and to track inventory flows at the pharmacy level using RFID technology.
At the time, wholesalers strongly objected, saying "drugmakers are encroaching on the distribution ecosystem," and the company mended fences by revising parts of its business plan. Over time, HMP Mall has become the main platform used by most pharmacies nationwide.
Recently, efforts have advanced beyond ordering platforms to integrating logistics and delivery.
The B2B platform "The Shop," run by M Circle, an affiliate of Daewoong, is a prime example. Daewoong Pharmaceutical is going further by dividing the country into regions and pursuing a "block-type hub wholesaler" model that designates wholesalers meeting certain standards as hubs.
The key is to simplify multi-tier distribution and use AI-based demand forecasting and a barcode delivery tracking system (TMS) to grasp the location of drugs and regional inventory in real time. It plans to strengthen cold chain management, send photos and location data to pharmacists upon delivery, and process returns within 10 days.
◇ Wholesalers push back, calling it "market control" and a threat to survival
Wholesalers are fiercely opposing these attempts by drugmakers, saying they undermine market order. Recently, the Korea Pharmaceutical Distribution Association has been holding rallies demanding that Daewoong Pharmaceutical withdraw its policy.
They argue the hub wholesaler approach is "distribution control" that funnels volume to a few firms. They also contend that the multi-tier wholesale structure has served as a buffer that helps maintain supply stability—core reasoning for why the current wholesale setup is sound.
An official at a wholesale company said, "If a certain wholesaler is out of stock, we can immediately secure volume through another wholesaler," adding, "inter-wholesaler resale is not inefficiency but a risk-dispersing device." The official argued, "Cutting this off could actually increase stockouts."
Small and midsize wholesalers also worry they could be pushed out of the market because they cannot meet tougher logistics standards and IT system requirements. Another industry official criticized, "On the surface it's transparency, but in reality it's restructuring that threatens the survival of small and midsize wholesalers."
"The hub wholesaler policy that Daewoong Pharmaceutical is forcing through will be a critical crossroads that determines whether the distribution industry secures distribution sovereignty and advances to a healthy ecosystem, or degenerates into a mere delivery outfit moving at the drugmaker's command. The hub wholesaler policy is distribution bullying that forces a toll on small and midsize distributors and is a monopolistic act."Park Ho-young, head of the Korea Pharmaceutical Distribution Association
"Because no one touches drug distribution in Korea, a powerful cartel has already formed. Currently, drugmakers can deliver directly to pharmacies, but practical logistics barriers and administrative burdens mean they are effectively forced to rely entirely on wholesalers. It is a structure in which drugmakers can never become the 'strong side' in distribution."Official at a Korean pharmaceutical company
◇ "Data is the key to distribution innovation… private and public must move together"
Experts disagreed with the industry's claim that the distribution structure, tangled with multiple "inter-wholesaler resales," buffers drug stockouts.
Kim Jeong-sik, emeritus professor of economics at Yonsei University, noted, "In a past, offline-centered market, multi-tier distribution may have provided some risk diversification, but in the era of digital transformation it can instead become a factor that increases expense and inefficiency."
Lee Sang-won, professor at the College of Pharmacy at Sungkyunkwan University, explained the recurring drug stockout crises as the "bullwhip effect," in which small changes in consumer-level demand amplify as they move up the supply chain.
This is a phenomenon where small anxieties become increasingly inflated in the distribution process, worsening actual stockouts. In other words, when there are many wholesalers and distribution stages are complex, even a slight increase in orders at some pharmacies triggers sensitive reactions, prompting each stage to build more safety stock and fueling anxieties like stockout crises.
Experts agreed that Korea's distribution system needs to be made transparent and modernized.
Kim Dong-sook, professor in the Department of Health Administration at the National Kongju University, who led the Health Insurance Review & Assessment Service (HIRA) commissioned study "A study on ways to improve the drug distribution system," said, "When no one can see overall inventory and distribution flows, neither competition nor efficiency can function properly."
There was also a steady assessment that corporations' attempts at distribution innovation are necessary in themselves. However, experts said it must also be examined whether the benefits can extend to the market as a whole.
Regarding Daewoong Pharmaceutical's hub wholesaler model, Professor Kim Dong-sook assessed, "It aligns with policy directions that call for reducing distribution stages for items where temperature control is important and building a system to grasp inventory and delivery status in real time." She added, "However, potential restrictions on competition and the exclusion of existing firms should be examined separately." In other words, distribution efficiency must not lead to strengthened market dominance by specific corporations.
Professor Lee Sang-won also said, "The direction of digitizing the distribution network and increasing inventory visibility is right," but pointed out, "If the benefits created by distribution streamlining go only to certain drugmakers and a few large distributors—not to consumers, the national health insurance finances, or pharmacies overall—another conflict could emerge."
Is there a way to find common ground between drugmakers and wholesalers?
Professor Kim Dong-sook proposed "combining private innovation and public infrastructure" as the solution. The idea is to link delivery and inventory data built by the private sector with national public information infrastructure to use it for monitoring drug supply and demand.
Kim said, "We need to move to a structure where data is visible and real-time inventory tracking and logistics information integration are possible, so we can secure both supply stability and efficiency," presenting as urgent policy tasks the "construction of a next-generation drug information system" and "mandating reporting of actual usage information by medical institutions and pharmacies."
There was also a suggestion to look to Japan among overseas cases. In Japan, small wholesalers were consolidated under holding companies to build a joint logistics system, and the number of wholesalers, which reached more than 1,200 in the 1970s, has now fallen to around 69. Regional responsible wholesalers handle logistics, while the government serves as the information hub.
Recurring stockouts of essential medicines are hard to solve through distribution reforms alone. Given the reality that corporations cannot sustain production due to low profitability, the supply base must be strengthened.
Kim Hyeong-sik, president of the Pharmaceutical Society of Korea, stressed, "Digital transformation and data systemization are the path we must take to improve drug distribution efficiency," adding, "Alongside this, we need to strengthen the supply base through production support and tax benefits to resolve instability in drug supply."
◇ Government also sees need to modernize wholesalers… first steps on data standardization
The government also agreed on the need to modernize the drug distribution system.
An official at the Ministry of Health and Welfare's Pharmaceutical Policy Division said, "We strongly agree on the need to modernize the wholesale sector, including measures to limit the proliferation of small wholesalers," but added, "No concrete plans or methods have been prepared at this stage."
The official explained, "Changes to existing licensing systems or application of new regulatory standards need to be reviewed with comprehensive consideration of their impact on the overall stability of the drug supply chain and on the distribution industry."
To improve drug logistics efficiency, the ministry plans to begin discussions on standardizing "aggregation" numbers assigned when bundling multiple small medicine boxes into one large box.
Although the aggregation number system is in operation, it is not a legal requirement. Since there are no sanctions even if wholesalers do not use it or handle it poorly, critics say there are limits to tracking which large box batches of drugs were bundled into and where they went within the complex wholesale distribution process.
On this, a ministry official said, "In the second half, we plan to gather on-site opinions on aggregation number standardization measures through a meeting with pharmaceutical companies."
Meanwhile, when asked about the status of promoting a "reporting system for usage information by medical institutions and pharmacies focused on essential medicines," which private experts proposed for introduction to HIRA, the Drug Safety Information Center at HIRA replied, "It is a mid- to long-term task, and there is nothing specific we can answer at this time."