Previous

Page - 7

The corporatisation of the retail pharmaceutical space will mean that one level of the distribution channel gets gradually redundant. Larger retail players will prefer to procure drugs directly from the CFAs or super stockists, and sometimes even directly from the manufacturers.
Hence, it becomes necessary for stockists to align themselves with manufacturers. This may also prompt distributors to consolidate in the future. Corporatisation of retail would also enable companies to pay higher margins to retailers and will drive down the retail costs of drugs (Dogra, 2006).

Benefits of Strategic Alliances

Partnering with stockists or super stockists allows manufacturers to adopt a more focused approach to managing the channel as well as clearly defining distribution objectives with regards to bringing down costs and losses. One of the best examples of this approach is SmithKline Beecham's approach to managing its channel. By making several of its stockists strong partners, they have succeeded in building relationships that have lasted several decades. The company also believes in providing excellent service to its retailers. Some of the services offered to stockists are in terms of stock management - regular replacement of old stock, credit period of seven days, autonomy in operations, protection from poaching from other stockists by means of regular checks, and working together as partners in progress. Again the company believes in efficient stock turnover for its retailers. A structured route plan also enables high service levels to retailers.

Partnering with stockists will also enable synergies with 3PL players in the distribution network. With the industry witnessing a consolidation, 3PL is emerging as a key player in the distribution network (Health Quotient, 2007). Thus, both 3PLs and stockists will be crucial to a manufacturer's capability in creating value throughout the supply chain and in providing high service levels to retailers.

Role of the Government

The existing 2-Tier tax structure of CST and local sales tax needs to be abolished, if drug affordability is to be sustained in the long run. The Government needs to move towards VAT which would eliminate any benefit derived from transferring goods under inter-state transfer. A fully implemented VAT regime would drive the change from a sales tax-based distribution network to a logistics based network. A VAT system would also improve transparency and help retailers.

Next

* Contributed by: -
Ramkishan Rajan has completed his Bachelor's (Mechanical Engineering) from College of Engineering, Trivandrum, and is a marketing enthusiast with specific areas of interest in Marketing of high technology products and consumer behaviour.
M. S. Diana has done her Bachelor's (Computer Science) from IIT Chennai, and has a strong analytical approach to marketing. Her specific areas of interest include marketing strategy and brand management. She is also majors in operations.
Both are currently students of the PGDM Programme (Batch 2006-08) at IIM Kozhikode.