Pharmaceutical Sector - Learnings

Owned by Ashish Chaturvedi
Last updated: Dec 05, 2023
4 min read

Learning from one Pharma Stockist in Madhya Pradesh

  • Goods flow – Manufacturer to Brand warehouse to CFA / Distributor to Stockist to Retailer

  • Margins : CFA (1.5-2.0%), Stockist (Scheduled Drugs 8%, Non Scheduled Drugs 20%), Retailer (16-20%)

  • Mostly 1 CFA agent for one brand in one state

  • Pharmarack – Selling to Stockist as well as Retailers now

  • Case : Box : Loose (Eaches / Strips). Largest packaging is Case. Case average value is 50 K INR

  • Stocksit keep – 30-45 days inventory.

  • Stockist get 15-20 days credit but has to give 45-60 days credit to retailer

  • Post GST, stockist are allowed to sell to any retailer in the country. This has dramatically increased competition.

  • Stockist returns 5% due to expiry.

Problems stockists face:

  • Batch nos on product doesn’t match batch nos on invoice to him. A drug inspector comes and ask for proof of batch nos match (product to invoice).

  • Stockist also has to match batch nos while receiving returns and sending returns back to CFA.

  • Same product has different strengths. Matching same to invoices is a big headache. Avoid sending wrong strength is also a headache.

  • When retailer returns the product stockist is unable to confirm whether it’s the same product he had sent to retailer or not.

  • More and more end consumer order online (Tata, Reliance), all the power will move to Tata / Reliance. A) They can then remove stockist as well. B) They will have overwhelming power over brands as well. Medicine is highly regulated industry. Need to have licenses to sell and trade. Thus it’s easier to replace current channels unlike FMCG, in which any one can trade / sell.

  • Pharmarack (joint venture of 5-6 pharma brands) has also been created to mitigate this risk.

Insights from Gaurav Sekhri, Senior Principal, TVS Capital

  • Single pharma store makes 40 lakh to 1 cr/year.

  • Challenges for a retail drug store,

    • Right starting stock to keep.

    • Medicines are generally divided into two categories

      • Prescription - no visibility of demand

      • OTC - demand patterns are clear

  • Fill rate of inventory - if the medicines are not available, buyer will look for it elsewhere. A typical neighborhood store keeps around 30K SKUs. 

  • Price sensitive customer - discount market. Customers are now looking for discounts.

  • Seasonality based fill-rates eg, higher demand for certain medicines during flu season.

  • 26% margin for a pharma company, RX plus OTC combined. 

Learnings from one of the largest offline retailer

  • Manufacturing to customer - FMCG is well formed compared to pharma.

  • Manufacturer-CFA-Distributor-Retailer, after distributor before 2009 was difficult to track. Associations and other regulatory constraints.

  • Every city will have 2-3 providers for the entire city.

  • No distributor now is functioning without an ERP, not necessarily SAP/Infor but local companies.

  • Need to track the batch as per legal requirement. Drug inspectors can ask for 3-5 year old records.

  • With batch, MRP and Expiry is fixed.

  • Retailers while billing back to distributor, there is no way to determine which distributor’s inventory is with the retailer.

  • There is no further analytics runs at distributor end to monitor above problem.

  • Two levels of checking at large distributors - also use barcodes.

  • Wellness Forever - video on YouTube.

  • In-house solution to manage their warehouses. SAP, Microsoft, Oracle were unable to meet dynamic requirements of Medplus.

  • Actual application of barcode on strips is a big issue. Hides the already small, unreadable print.

  • Dont want to waste money on barcode as it is very expensive. Doing it for exports and not for India due to cut-throat competition.

  • Using machines to barcode strips in certain locations like Kolkata.

  • Time to market gets affected due to barcoding. Regulation will make it happen in India.

  • CFA works on a very thin margin.

  • Unless it is on the strip, it is not useful.

  • 400,000 products in the master.

Biggest problems

  • Predicting the demand is biggest problem in the industry.

  • Maintaining cold chain.

  • Financial viability - time to market - volume of work.

Distributor - 45 days stock

Retailer - 30 days

CFA-week or less

Manufacturers - 45 days to 4 months

Retailers and Distributors manage expiry very well.

4-8 lakh retailers across India.

Apollo - 6k store

Medplus - 4k store

40 percent margin for pharma companies - 2% return does not matter too much

Learning from one of the largest pharma CFA company

  • There are about 4-5 lakh SKUs. 2-4K pharma companies.
    CFA were there to save CST. Post GST loosing relevance.
    Serialization has to happen at manufacturing level. Serialization is the only solution.

  • Industry is full of herd mentality. All copy cats. Crack couple of clients, rest will follow.

  • There are about 400 billing softwares (used by retailers and distributors). Top pharma companies and MNCs use SAP). Be open to integrate with them.

  • Also integrate with HMS (hospital management systems). 10-15% market is there.

  • Auto replenishment – we should pitch auto replenishment. This is what pharma companies want and want to hear.

  • Sales force cost is 10% of revenue. Anything to make them efficient or cost go down will make direct impact on bottom-line.

Additional Information on Supply Chain MRP Breakup

 

 

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