1. For both regulatory and commercial reasons, governmental regulatory bodies such as the SFDA (State Food and Drug Administration) are very strict in their health and safety provisions, and there is no room for negligence, from the pharmaceutical factory to the warehouse and the distribution terminal. Our famous GSP regulations are one example. These regulations govern the entire process of warehousing and logistics, including batches, dates, refrigeration and freezing, safe areas for hazardous substances, and controlled substances.
2. In logistics operations, the requirement for zero deviation, the requirement to track any lot in motion, and the scope of traceability requirements for pharmaceuticals extends to the entire supply chain, from shop-floor management in the factory to the retail shelf.
3. Accidental distribution, re-recalls, or product returns have a huge impact on overall public health and social obligations, so any error in logistics operations carries a huge opportunity cost.
4. Industry mergers and consolidation have driven pharmaceutical companies to use ERP systems to centralize their global organizations. Once ERP systems are implemented, the need for strict lot management accountability drives the growth of advanced warehouse management systems and supply chain management software; at the same time, the market accelerates pressure for productivity improvements and cost-saving measures due to the need to control and manage drug price gross margins.
Thus, the key factors for successful operation of the pharmaceutical supply chain include: real-time visibility (across the entire pharmaceutical supply chain), high degree of flexibility (in supply and resource selection), agility and responsiveness (in response to changing customer demands and shorter lead times), and timeliness of new product introductions (in response to shifting market trends and needs). The pharmaceutical supply chain places particular emphasis on real-time visibility and predictability of antecedents, as well as the ability to manage supply chain processes and events.
Analyzing the development ecology of US pharmaceutical wholesalers will give us more insights. We can see that companies are positioned differently, which naturally leads to different strategies and logistics operations.
Obviously, we can see that in the United States, companies like McKesson, Cardinal Health, etc. belong to the so-called pharmaceutical full-line product distributors, and the industry is characterized by the following:
● Absolute high industrial concentration: we can see that, in addition to the top 5 wholesalers, the other wholesalers account for a mere 10% or so of the share.
● Their large-scale business is based on the rebates stipulated in the contracts with factories, and their profit model is large-scale and low gross profit, the gross margin is even as low as 8% to 15%, which transfers a part of the average gross profit of the industry to the downstream purchasing organizations.
● Its massive adoption of high-tech information technology, such as EDI, implements a series of supply chain development strategies. This is its core competency and has become a series of value-added service offerings in its own right.
●Emphasizes cost leadership, efficacy, service levels, and focus on customers and products. McKesson's strong focus on customer focus can be seen in its product line, which is a large number of value-added services. Moreover, it emphasizes even more on cost leadership in its level of operation. The chart below left illustrates how the largest pharmaceutical wholesaler in the U.S. focuses on continuous efforts to increase efficiency and reduce costs.
So when we look at the future of China's pharmaceutical distribution industry, we can see trends that are sure to emerge:
First, there is pressure from public **** healthcare organizations to reduce costs. China's new government emphasizes the "people-oriented" development strategy, especially after the "SARS", the government of the public **** medical institutions pay more attention to the specific manifestation of the cost of pharmaceutical products to reduce the requirements. This requirement will first be passed to the pharmaceutical business enterprises, and then gradually passed upward.
Second, the gross profit downward transfer. On the one hand, it means that the "good old days" will not come back, the industry's overall gross profit level will be irreversibly low, which is the result of market competition; another meaning is that the gross profit from the manufacturing industry gradually to the wholesalers and retailers to transfer the nearest consumer pharmaceutical business enterprises will be given more right to speak.
Third, the integration of all channels increases. Everyone is talking about the "scattered" and "chaotic" problems of China's pharmaceutical distribution enterprises, and are predicting the consolidation of the industry as a whole. Now all the signs and signals indicate that the domestic giants will seize the Chinese market before it opens to foreign investment and raise the banner of mergers and acquisitions and integration.
Fourth, the demand for value-added services is increasing. If pharmaceutical wholesalers are still stuck in the business model of the price difference between purchase and sale, they will soon find that they will be beaten by some "price butchers". When competitors are giving away manufacturer's rebates to downstream customers or consumers, the only way to compete with them is to truly understand the service needs of downstream customers or consumers, and use differentiation strategies to win the competition. I think the international giants of the service product line will give our enterprises a good inspiration.
Fifth, hospitals are looking for different ways to choose for asset equipment and services. There is no doubt that this is where the really exciting opportunities lie for pharma commercial companies in the next 3 to 5 years. When you can truly convince your most important customer, the hospital, to outsource their pharmacy with automated equipment and replenishment systems, it rewrites the concept of "pure sales". I firmly believe that a company that has a voice in the pharma supply chain is the one that has control of the endpoints.