Kalyan Pharma Ltd.

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Sales and Distribution Management: Assignment 6
“Kalyan Pharma Ltd.”

Evaluate the New Distribution System and suggest how to strengthen the system in
context of changing Information Technology Environment.

Kalyan Pharma Ltd. (KPL) was established in 1907 and has evolved its Distribution System of
Pharmaceutical products over years.

KPL was following a strategy of wide network and open door policy in its early years; however, with the
growing market and reach, it developed its distribution of various products via wholesalers and distributors.
Currently, in 1991, the main motives of its Distribution system are:

• Improve customer service

• Reduce cost of distribution
• Reduce order processing time
• Reduce inventory at various levels of distribution

Pre-1972:

Distribution: Exclusive Distribution with a 15% commission

Marketing: KPL

1972-1979:

Distribution: Stocking and movement of goods by KPL to branches to retailers

Marketing: 4 regional Marketing companies of KPL
Overall Marketing Strategy: KPL

1979-1987:

Distribution: Regional distributing company to wholesalers to retailers (DPCO effect led to introduction of
wholesalers)
Marketing: 4 regional Marketing companies of KPL

1987-1990:

Distribution: Factory to KRD to Wholesalers to retailers

Marketing: 4 regional Marketing companies of KPL

Evaluation of current system (in 1991):

In an objective to serve the customer better and reduce account receivables, Distributors were introduced in
the system that would perform the functions of receiving supplies, sorting, stocking and dispatching.

• If we look at the system closely, we see that introduction of Distributors is an effective way to save
costs and help maintain inventory levels. The KPL regional branches can then focus completely on
sales promotion and marketing.
• However, looking at the margins now shared by KPL in the current model, they have increased
from a total of 19.5% (adding average of 5-8% and 10-16%) to 22.5%, which depicts that there is a
reduction in profitability of the organization.
 Kalyan Pharma Ltd.

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• Reference Exhibit 3, we further see that despite of an increase in the Operating Profit and Total
Sales, the Net Profit is decreasing for KPL since 1988-89.

Recommendations:

• With the upcoming IT advances and global systems in places, KPL can take the advantage of an
online order system for Retailers

o Premium retailers with significant revenue (as compared to a normal retailer) can place the
order online whose information directly goes to the Finished Goods Store (FGS). The
distributor on receiving the goods can directly provide goods to the retailers thereby,
eliminating wholesaler’s margins. KPL’s: medical representatives’ force of 600 can be used
to target this segment for online ordering.
o Normal retailers can also place orders online; however, they receive their goods still
through wholesalers.

• While the order is placed for a premium retailer online, a pop up service can show if
the goods exist in the distributors’ inventory currently or not, which will give an estimate of the days
in which order will arrive. This will help in serving the customers better.

• The existence of KRD with the introduction of Distributors in 1991 looses

significance. As we see in Exhibit 6, there is an inventory level required at FGS as well KRD now.
The inventory level can be reduced by supplying goods directly from FGS to the distributors. The
distribution staff at KPL can be utilized to organize the inventory as per distributors at FGS and
online IT system implemented will help achieve this task easier and faster. Hence, KRDs can be
eliminated from the current Distribution System.