Features

Drug distribution system

Wednesday, August 09, 2006 08:00 IST
Abhay Kanoria

The availability of drugs to the customer at the right time, at right price is a very
important part of healthcare. With over 64000 brands of various medications being
manufactured, the doctor has an immense range to choose from. Depending on the
medical presentation and history of the patient, he first decides what the medication or
medications should be. Then there is the choice of which brand of that drug should be
prescribed. As an example, if the doctor diagnoses a deficiency of vitamin B complex, he
has over 50 brands to choose from. The various considerations are correct formulae,
efficacy, possible side effects and so on. Representatives from various companies vie for
his prescription, explaining the benefits of their particular brand to him. With all this
information he now chooses to prescribe a particular brand. The patient goes to the
chemist to get his prescription filled.

In our country, the distribution system is fairly well developed. Going backwards from
the end consumer, the chain is - retailer or chemist, stockist, carrying and forwarding
agents (CFAs), and manufacturer.

Retailer
A typical retailer has a few days stock of a very large range of medications, from a huge
range of companies. He is close enough to the stockist to get replenishments within a day
or two. There would be half a dozen or more brands of each drug on his shelf to cater to
the prescriptions of doctors. In spite of this, there would at times be prescriptions for
which he does not have available goods. He then immediately tries to get it from the
nearest stockist. In the meanwhile, he may also suggest to the customer a replacement
brand.

Sometimes he is driven by other considerations such as profitability, personal

relationships with representatives of various companies, etc. A common practice is for
manufacturers to give quantity reductions to increase their sales. In such cases, the
retailer will suggest to the customer that he takes the more profitable brand rather than
the one prescribed as there is no significant difference in quality, efficacy, etc.

In an agreement between the industry and the trade, the retailer is entitled to a margin of
16% to 20% of the MRP that is as per by law, printed on the medication.
His role is critical, especially during the launch of new products. The representative of a
pharma company suggests to a doctor that a new product has come on the market with
better results than the older ones and the practitioner is convinced enough to prescribe it
to his patient. Now the patient must be able to buy it from the chemist. On the other hand,
no chemist would like to keep a product for which prescriptions are not flowing
regularly. This is in a way a chicken and egg situation - which comes first, the
prescription or the stock? In close coordination, the industry and the chemist work
together to arrive at an optimal balance, keep enough to fulfill the first prescriptions and
then add stocks as the requirement increases.

Stockist
The next in line is the stockist, who some companies call wholesale dealers. He would
also buy the complete range of medications, but from a rather smaller list of companies.
His typical stockholding would be 2 to 6 weeks, depending on the distance from his
supplier, the CFA, his buyers, and the retailers. He has visiting salesmen who service the
retailers on a very frequent basis. Those very close, in the same vicinity of the city may
be visited every day, those a little further on alternate days and those in nearby cities on a
weekly basis. By agreement, he gets between 8-10% of his sale price to the retailer.

Carrying and forwarding agent

The direct link between the manufacturer and the trade is the carrying and forwarding
agent (CFA). He is the representative of the company and hold stocks on behalf of the
company. Typically, there would be a CFA in each state. In large states like UP, MP, etc
there may be 2 or more. Large companies may have even more. He would typically deal
with about half a dozen companies and hold stocks of 4-8 weeks. He supplies to the
stockists, depending on the distance, once or twice a month. As there are large distances
to be covered and small quantities to be delivered, he needs to keep a sharp eye on the
stockholding of the stockist. As he is the representative of the company, and he is closest
to the market, he also recommends stockists to be appointed, their credit worthiness,
catering to chemists, etc. The CFA typically gets a margin of 2-4% depending on the
quantum of business he handles.

Areas for attention

While by and large the system works well there are some areas that need attention. The
foremost of these is spurious drugs. It is an unpleasant fact of life that there are
manufacturers of these in our country. Spurious takes 2 forms - one is outright fraud, in
which the manufacturer exactly copies the look of the tablet/capsule and the packaging
and tries to pass it off as the original. This is very difficult to detect. The other form is
where the spurious manufacturer has tiny differences in the packaging, such as a single
letter change in the spelling of the medication. Although clear on examination, it is not
immediately obvious. In both cases, the answer is the same. The chemist should buy only
from the authorized stockist, who in turn should buy only from the authorized CFA.

Another possible improvement could be that there are qualified pharmacists at each
chemist. A trained person will know exactly what a prescription is for and may even be
able to recommend specific medications for minor ailments like colds, headaches, etc. He
will also warn the patient of possible precautions to be taken as well as side effects to
watch out for. While it is an ideal solution, the feasibility has to be looked into,
considering the availability of such qualified personnel as well as the remuneration they
would need.

Some companies are planning to have a separate sales force who only meets the trade
partners and not the doctors. Their focus is on availability and not prescription
generation. This may or may not be needed. There are chains of medicine shops opening
with growing numbers of franchisees. They have the advantage of being purely
pharmaceutical shops and so will usually have better trained personnel.

In developed countries, there is online connectivity from the company to stockist and
sometimes even to the chemist so that product movement is monitored regularly and
quick action taken for adequate stocking as well as problem solving.

In India, there is a price control imposed by the government. It should encourage

companies to implement anti-counterfeiting measures by allowing them to charge a
higher price for utilizing such technology.

The industry and the trade can come to an agreement that throughout the chain only
company authorized stockists and chemists are allowed to sell the product. Uniform tax
structure, although started is far from reality. The recently introduced VAT has been
defeated. Sales tax is being charged on the final selling price instead of the sale price at
each point. The irony is that is called "value added tax on maximum retail price".

In summary, the distribution system is alive, kicking and robust. It could do with some
improvements to counter the spurious drug menace and qualified personnel to assist the
final customer, that is you and I.

As a responsible company Anglo-French would like to improve their own distribution

with changes
- to ensure that our products in adequate quantity are available at all levels of the chain
- to keep retailers and stockists informed and educated about our range of products, thier
USPs and quality, profitability for the trade and on the menace of spurious drugs
- to broaden the coverage so our products are available in every part of the country.
- To monitor sales from the stockist to the retailer to have optimal stocks at each level.

(The author is chairman & MD of Anglo-French Drugs & Industries Ltd)