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Dear Pharma Veterans. This series of Blogs is to have a summary view of Pharma Business in Pakistan. It is a series spread over several parts covering the entire spectrum of Pharma business.
Pharma Business – DISTRIBUTION
DISTRIBUTION MANAGEMENT II
After looking at the Distributors’ services, we briefly look at the qualifications of a good distributor. Following factors may be considered.
- Financial Capability. Distribution is a capital-intensive business. At any given time, the distributor has about 60 days’ worth of inventory. In addition, a fair portion of their turnover is tied up in market credit. It is not about bad credit; it is regular credit. This amount runs into millions and never comes back; only stays in circulation. Almost all companies deliver stocks against advance payment. The turnover is high and most sizeable distributors carry 5 – 10 companies. If the average monthly sales of all principals at a distributor is 100 million rupees, he would have 200 million rupees inventory and may be 50 million rupees circulating in the market. Add to this the new products which are launched regularly by all growing companies and aggressive business targets, the cash involvement keeps steadily increasing. I put financial capability on top. Everything else can be managed but nothing can work if enough financial muscle is not there.
- Market Coverage. Every serious Pharma company wants to follow retail sale, because that is real sale. Selling to wholesale market is not useless, but it is basically putting stock into another conduit from it will ultimately go to retail for selling. As mentioned earlier, retail pharmacies are increasing in number and size and importance. They have the power to switch prescriptions, although reputed pharmacies do not do it. In any case, they fill the prescriptions. If for any reason, the drug is not easily available, there is a likelihood that the doctor would stop prescribing or prescribe alternative drug. A good distributor not just covers 90% retail pharmacies but gives extra service to high-potential customers and areas. For example, pharmacies outside/ near a major hospital may get supplies every day. This has happened incrementally, over time and in the spirit of competing for better service/more business.
- Work Organization. I may say that ALL distributors are using software for sales and stocks. The quality, compliance and credibility may vary. There are incidences of duplicate software running and misreporting of sales and stock in connivance with the sales team or independently. The intent is to reduce financial commitment and gain more benefits. Pharma distribution (like FMCG) is extensive, intensive and exhaustive kind of work. Time is of critical importance. One day business lost cannot be recovered. The distributor must be highly organized in order to keep pace with the aggressive working of principal.
- Reporting Systems. As mentioned above, all distributors are using some kind of software. However, reporting systems, formats and capability may vary greatly. It is important to assess the reporting processes of the distributor to be hired. Reporting system has also become important due to two additional reasons.
- IMS (now IQVIA) collects distributor data on regular basis. For this purpose, they install their own software in the distributors’ software so that they can keep receiving data. If your distributor cannot comply with this, reporting of your business statistics by them may be disadvantageously affected.
- M-Rep, Ikon, IISOL also connect to distributors’ software, collect data from there and provide the company with sales analysis and other related reports.
- Market Standing. The market reputation of a distributor is the sum total of the following features. A distributor with good market standing will be able to support you in many additional ways.
- Quality of service
- Ontime delivery
- Full delivery
- Excellent customer service
- Fair distribution of short/hot products
- Decent handling of customer complaints
- Conflict of Interest. This factor has become important due to intense competition between various Pharma companies. Companies believe that conflict of interest arises due to two major factors.
- All generic companies are selling more or less similar products. Some brands are more successful than others. The successful company does not want that their business information may be leaked to the competitor company operated by the same distributor. It is a tricky area. No distributor will deliberately share this kind of information. But so many staff are involved in this process and it is well-nigh impossible to maintain airtight secrecy. Then, the mere presence of competitors at the same premises at the same time may spill some beans here and there. The larger companies insist that the distributor should not carry closely competing companies. This is a stringent condition and only the real powerful (big business) companies can pull it off.
- The other fear is that in the crowd the company will get divided attention and therefore compromised results. When a distributor’s salesperson goes out for booking, he is usually carrying lists of 3-4 companies. The distributors try to divide companies in a way that no company gets less attention, but it is a tall order. The Big Local Pharma now insist that at least they must have a separate, dedicated sales team handling their products exclusively. The big ones ask for it and get it.
This brings us to the close of discussion on distribution.
Next, we shall discuss Business Development.