The last mile challenges for drug-makers

With over 60,000 stockists, semi-stockists and 600,000 retailers, the distribution and retail channels for medicines in the country is complex. And, often, even for drug companies, there is little visibility on the last mile of the medicine as it reaches chemist shelves and, eventually, consumers.

Navigating through a fragmented segment, dotted with unorganised independent units and inadequate information infrastructure, drug-makers are faced with uncertainty regarding stock movement in the channels beyond the CFA (carrying and forwarding agent) points.

And this results in instances of non-availability of medicines or products at the retailer, translating into loss of sales for the company, points out Muralidharan Nair, Partner with Ernst & Young. Drug companies register losses when their representatives are unable to service the shortage of medicine-stocks at a chemist fast enough, he explains. In fact, drug-makers need to make their supply-chains efficient by becoming customer-driven in replenishing stock, as opposed to merely pushing month-end stocks into the channel, he says, giving insights from a recent E&Y study jointly done with the Organisation of Pharmaceutical Producers of India.

“In the current state, visibility of the post-CFA supply chain is limited, and is traditionally through the visits of the sales force to stockists/retailers as well as through the monthly stock and sale statements of stockists.” And because of this opacity in the chain, pharma companies rely on primary sales to stockists as a metric for measurement of performance, the study observes.

The absence of technology integration from end-to-end, as seen in the US or the UK, is also a problem, observes Vaijanath Jagushte, senior representative with the All India Chemists and Druggists Association. The producer sends medicine stocks to a network of stockists, but there is little feedback on products’ sales in different geographical regions at the retail level, he points out.

Mounting loss

The extent of sales loss varies from one per cent in the metros (across product categories) to up to 5 per cent in Tier 2 and rural geographies (and as high as 20 per cent in small heritage brands), according to the study. The variation in loss of sales across geographies and product categories can be attributed to supply chain aspects such as the reach of the supply chain, service levels, the working-capital constraints of stockists, awareness of customers and financial returns to stakeholders.

If companies are unable to arrest this loss of sales (compounded over 10 years), it would mean a revenue loss of 30-50 per cent. On the contrary, if companies are able to plug the gap in the availability of these categories, it would mean a volume growth of 3-5 per cent every year.

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