Pharmaceutical Distribution in India - Drug manufacturers in India are struggling to improve a highly fragmented domestic distribution network. - BioPharm International


Pharmaceutical Distribution in India
Drug manufacturers in India are struggling to improve a highly fragmented domestic distribution network.

BioPharm International
Volume 21, Issue 10

IT Adoption

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.

Future Challenges

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.

Brand Substitution

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.

Recalling Drugs

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 the system.

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,

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