Medicines must be delivered to patients at the right time, with the required quality, and at the right price. The consequences of stocks outs and poor forecasts are more severe in this industry so distribution, inventory management and S&OP are things you need to get right. But in this market characterized by volatility, high competition and unique industry dynamics, it is not easy. Here’s where the S&OP process can be a solution to balance demand and supply, better anticipate demand, minimize supply risks and reduce costs.
Pharmaceutical Products- Way More Than FMCG
A pharmaceutical product or medicine is characterized by the fact that it is a common consumer good. It’s therefore subject to a market forces and financial and economic constraints. But it is also provided to the sick, which make it an essential vector of healthcare services. The distribution of pharmaceutical products is similar to other products, but in this industry it is uniquely important because the way they are distributed has direct effect on the health of the population. Therefore, ensuring availability to the consumer is critical.
The Pharmaceutical Wholesaler-Distributors Is A Critical Actor In The Pharmaceutical Value Chain
Pharmaceutical distributors have a key role in the pharmaceutical Supply Chain, as it represents a link between laboratories and pharmacists. They are supplied by the pharmaceutical products, which are managed, stored and distributed to the pharmacists. Distributors manage a wide range of products and know their evolution in the market.
On the one hand, distributors have a limited choice of suppliers. On the other, they suffer from competition from other distributors. Therefore there are no exclusive relationship between distributors and pharmacists. The result? Demand becomes more difficult to anticipate.
The activity of pharmaceutical distribution is characterized by a strong barrier to entry, which makes it very delicate. Laboratories set delivery quotas for certain products, which represent the market share of the distributor for the previous year. This makes the creation of new distributors more difficult and reduces possibilities of gaining market share.
Supply Chain Efficiency Is Crucial To Maintaining Profit Margins
Here in Algeria, the government imposes purchase prices, sales prices and margins, so price competition is limited. Distributors must provide a high service quality and be able to control costs to save the profit margin. The latter means that distributors must pay keen attention to Supply Chain optimization and inventory management. Key factors for us are:
- Managing a large stock of products (over 90% of products) and ensure their availability
- Ensuring on time delivery and delivering within 24 hours
- Delivering high quality orders and products
- Minimizing stock outs and obsolete inventory
- Cost saving and investment in analytics and IT
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The S&OP Process, Key To Success In Pharmaceutical Distribution
As discussed, Pharmaceutical distributors must ensure efficiency and effectiveness in this market characterized by demand volatility of products, competition and a high risk in the supply side. Logistics capacities and inventory cannot respond to demand efficiently if there are errors in order deliveries, stock gaps and delays. This impacts financial performance.
To put supply and demand in synchronization, we must implement the S&OP process. The objective is to integrate the demand plan, the supply plan, and sales plan into one consensus plan. In order to implement the S&OP process, distributors have to:
- Establish a culture of collaboration between all the functions, with a continuous improvement vision
- Win the commitment of senior management to set performance challenges and resources
- Appoint the right person to lead the process, who has the ability to involve and motivate others
- Implement methodologies and demand forecasting software and focus on improving forecast accuracy at family and product level
- Manage supplier relationships by producing an accurate supply plan within the appropriate time horizon, with optimal quantity, discounts and payment deadlines
- Set a consistent list of KPIs to help analyze previous periods and upcoming planning objectives
Pharmaceutical distributors should think about including other players in the pharmaceutical Supply Chain. The first step is to collaborate with pharmacists to exchange information about demand and inventories. The second step is to provide laboratories with the demand and the purchasing plan, and make sure all the stakeholders in the pharmaceutical chain have aligned goals.