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INR 80-85
INR 100
INR 70
Stockist
INR 80
INR 69
Manufacturer
CFA
Retailer
INR 72
INR 100
Consumer
INR 80
Substockist
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3. Key Findings
The two major challenges faced by the pharma supply chain are:
1. Loss of sales due to non-availability of products
2. Excess Inventory across different points in the supply chain
3.1 Loss of Sales due to non-availability of products
The extent of loss of sales varies from 1% in the metros, 3% in Tier 1 cities and upto 5% in the Tier 2
cities and rural markets. This can be attributed to the reach and service levels, working capital
constraints and net margins to the retailers.
3.1.1
Metros: Due to intense competition among stockists to get business from the retailers, the
reach and coverage across the cities is very high and every retailer is serviced by multiple
stockists. Also the service levels to the retailers are very high owing to the close proximity of
the stockists and lead times are generally within a day. This leads to very less or negligible
stockout situations and thereby loss of sales
Rural: The number of stockists reduces in the rural setting and therefore the competition
and service levels provided to the retailers. As the distance between the stockist and the
retailer also tends to be higher, this leads to the retailer having higher inventory (1-2
months sale in far flung areas) to service customers. As a result there is a higher chance of a
stockout situation and thereby loss of sales.
3.1.2
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When the retailer goes to a market where multiple stockists are present, in the event that a
retailer does not get a better price, he tends to wait for the end of the month, when the
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stockist is looking to offload his stock and hence provides a discount or runs a scheme on
the products. This results in a loss of sale at the retailer when the customer visits the retailer
for a product. The extent of this has reduced owing to the Drug Pricing Control Order
(DPCO) of 2013.
Pharma companies use the primary sales as a metric for setting the targets and most often
these are not reflective of the actual demand of the product in the market, this leads to a
push from the sales force and thereby skewed stockists inventory towards the end of the
month.
This data is then used for forecasting the demand for production at the factory, which leads
to inventory buildup in the supply chain.
On the other hand inventory pileup at the stockists, forces them to discount stock. This will
again lead to retailers waiting for such events and deferring their purchases.
No Singular System to address the FEFO Issue (First Expiry, First Out): Stockists and Substockists are using primitive methods to address the FEFO Issues. These methods include
identifying the batch numbers of near expiry products and pushing the same into the
market with the help of their sales force, Racking products according to their batch
numbers, so that deliveries always happen from the rack that contains products that have
arrived the earliest. The reason for using such methods is that even though the company
reimburses the stockists for expired products, the stockist does not get a reimbursement for
the taxes which are paid to the government for the purchase. Hence the stockist stands to
lose almost 10% on the return of expired products.
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Product Recalls: Once the primary sale is done to the stockists, pharma companies find it
difficult to track the product in the downward supply chain and in the case of recalls; they
run advertising to help recall the respective batch numbers of the product. As the cases for
recall are few and far between, companies are not very hard pressed to solve this problem.
Degradation of temperature controlled drugs while passing through the supply chain: Due to
time it takes for the product to reach the end consumer, products which are semiperishable tend to degrade(reduction in potency of the drug) during their travel through the
supply chain. This is evident in the case of vaccines and biologics.
Note: The information collected has been from primary sources such as stockists, medical
representatives and depot managers.
Appendix
Value Chain Cost Distribution:
a.
b.
c.
d.
e.
f.
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