Pharmaceutical sales and distribution has changed a lot in the past 20 years.

2005-04-07T08:26:00.000-07:00

by Hugh G. Davis, Senior Instructor , Kriger Biopharmaceutical Career Training Program www.kriger.com , info@kriger.com

This article has been published by the International Biopharmaceutical Association www.ibpassociation.org

The project is sponsored by KRC CRO and training services ( www.kriger.com ) and ClinQua CRO (www.clinqua.com )

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Today’s Internet technologies have radically altered the dynamics of the traditional supply chain in virtually every major industry. But while the pharmaceutical industry has been fairly quick to embrace the efficiencies to be gained from e-procurement initiatives, it is just beginning to explore the potential of sell-side e-business applications. Manufacturers are beginning to look internally to control expenses. The industry is already using procurement technology applications to lower their costs for things like raw materials, but now they’re starting to shift their focus to the sell-side of the supply chain.

Pharmaceutical sales and distribution has changed a lot in the past 20 years. Most of the major manufacturers formerly had a direct detail force and were shipping direct up until the early 1990s. The value was derived from a rich sales and relationship channel, but then, as costs grew with all of these pharmaceutical reps, the pharma manufacturers started moving their reps out of the pharmacies and clinics and started shifting a lot of their distribution over to wholesalers.

Now manufacturers are only working in a direct fashion with the larger chains and major healthcare providers, leaving no one to call on the small pharmacies and clinics. There exists a fragmented population in the marketplace that would likely benefit from the opportunity to reconnect from a content, as well as a direct commerce, perspective.

And that population is a significant one, in terms of sales for manufacturers. This group is thought to represent 75% of the number of buyers, and about 35-40% of the actual revenues.

One strategy is to increase sales in fragmented markets with less than $100 million in annual purchases by reconnecting buyers and manufacturers through web-based tactics. As the relationship is Web-enabled a firm can use this new channel for marketing niche items and categories and focusing on new item launches.

Supply chain synchronization is an even bigger issue than reconnecting with fragmented buyers. The value in this area comes in reduced inventory carrying costs and a stronger predictability of workflow through the manufacturing and distribution practices. However, with 80% of the volume in the U.S. flowing through four large wholesalers, who make 70% of their profits by speculating against price increases, it causes a game of cat and mouse between the large manufacturers and the wholesalers. The manufacturers want increased visibility of the process, and the wholesalers aren’t willing to give that up.

One school of thought contends that an independent trading exchange is the answer to the industry’s sell-side supply chain challenges. A firm by the name of Channel Link instituted such a public marketplace, which became operational in the past year. The marketplace allows buyer and sellers to come together in a common, neutral area where the access to product details and pricing are completely controlled by the manufacturer. The marketplace platform leverages existing manufacturer messaging protocols and formats and back-end systems to electronically exchange product catalog information, catalog updates, inventory snapshots, orders, order acknowledgements, shipment status and invoices.

Thee two principle values gained from this setup are operational control and strategic control. From an operational perspective, manufacturers can literally launch new items to the entire market within 24 hours and they can dramatically start to improve their supply chain efficiencies on the front and back of the supply chain. For most of the larger manufacturers, this means a dramatic increase in their turns on inventory and starting to move toward eliminating the conventional chargeback process.

In terms of strategic control, such a marketplace offers a new sales channel for the approaching era of customized drugs with shorter shelf lives. Customized vaccines, AIDS, oncology and fertility drugs – all kinds of high-cost, low-sale items will require a new channel outside the ‘mainstream.’ The distribution chain of the future is clearly not going to look anything like it does now and the pharmaceutical industry must be prepared for the coming change in supply/distribution landscape.

Internet Technologies for the Biopharmaceuticals

Pharmaceutical sales and distribution has changed a lot in the past 20 years.