IT adoption in healthcare has grown drastically. Pharmaceutical companies have realized the need for integrated solutions
in SCM to keep inventories at optimum levels, to improve distribution, to provide for liquidation of stock, and to streamline
interconnectivity between manufacturing facilities, warehouses, and CFAs in different states. The use of software like SAP
and SAS, apart from other customized software, is increasing. However, the adoption of technologies such as radio-frequency
identification (RFID) has been slow.
Pharmaceutical companies in India have realized the importance of SCM and are aggressively looking for ways to improve the
costs associated with SCM. Distribution in India is proportionally much more costly than it is in the US or EU. The companies,
which have spent as much as one-third of their revenues toward financing their supply-chain operations, recognize that the
cost of logistics is very high in India. In US and EU, the expenditure on SCM alone is perhaps 2%, whereas in India, it averages
4–6% of total sales. According to Gokarn, "It's mainly because in India, the cost of drugs is very low compared to the developed
markets. Taking into consideration the poor infrastructure and extreme geographic conditions, it is difficult to curtail the
cost involved in SCM."
Long-Channel Inventory Management
The multilayered distribution channel and lobbying at all layers has been successful at preventing pharmaceutical companies
from bringing in significant reforms toward higher trade margins, and at bypassing the multiple distribution layers to reach
customers directly. Because pharmaceutical companies do not have direct access to retailers' data on sales (tertiary sales),
most pharmaceutical companies depend on stockists' sales data to monitor sales (secondary sales). The primary sale involves
transferring stock from the central warehouse to its CFA. The medical representatives are given predefined sales targets.
To meet these targets they push inventory on the stockist to levels that exceed the actual demand. When the next level of
sale does not take place, the stockist will either return goods to the company or the stock expires.
Increasing Competition Between Wholesalers and Retailers
Today, with so many mergers and acquisitions in the Indian pharmaceutical industry, the number of stockists for each company
has increased. Now two stockists from the same company may be competing against each other. Retailers take advantage of this
situation by prolonging the credit period and asking for more discounts, which has an adverse effect on stockists, because
they have to comply with the retailers to sustain their business.
The emergence of generic drugs has also taken a toll on Indian pharmaceutical company sales, as prices can be almost two to
15 times less for the same drug. Moreover, to capture market share generics, companies offer higher trade margins at the retail
level. Sometimes generic drugs provide up to 500% trade margins, which is a lucrative offer for a retailer to pass up, and
this leads to brand substitution.
There is no foolproof system for recalling drugs in India. Once a medicine is released into the market, it becomes a daunting
task for a pharmaceutical company to recall because of the highly fragmented nature of the distribution network. Newer technologies
such as RFID would help in keeping track of products along the entire chain and would prevent counterfeit drugs to enter into
International Competitiveness and Cold-Chain Management
Indian pharmaceutical companies are increasingly seeking opportunities to supply drugs to the world market. More developed
cold-chain management practices will be required to achieve this goal. This is one of the major challenges faced by the industry
if they are to retain product quality during shipment. Companies like Eli Lilly in India have implemented initiatives such
as having their own vehicles equipped with cold-chain management systems. Other companies such as World Courier have developed
cold-chain management models to help pharmaceutical companies maintain the cold chain.
Manufacturers must ensure that their drug reaches customers with uncompromised quality.In India, because manufacturers do
not retain control over the multilayered distribution system, the cold-chain management process continues to be difficult
and expensive. However, manufacturers are increasingly realizing the importance of an effective distribution system, all the
way to the end-customer. Coping with the challenges of streamlining the systems in India will ultimately benefit the patient
and the healthcare system.
Abhijeet Kelkar is a business unit director at D2L Pharma, India.
Eric Langer is president and managing partner at BioPlan Associates, Inc., Rockville, MD. 301.921.9074, email@example.com